Contracts for Primary and Secondary Care Physicians and Equity-Efficiency Trade-Offs

We analyse how payment systems for GPs and hospital specialists affect patients' inequalities in healthcare treatments, referrals, and health. We present a model of contracting between a purchaser and a GP and a hospital specialist, with patients differing in severity and socioeconomic status. Patients have high or low severity, and the GP only receives an informative signal on severity. We investigate four health system configurations depending on whether the GP refers high-severity patients or all patients, and whether the specialist treats only high-severity patients or all patients. We characterize possible equity-efficiency trade-offs arising from two policy interventions. We show that a tightening of a GP referral system generally increases allocative efficiency but also increases health inequities. A tightening of access to specialist services increases allocative efficiency and health inequities when the GP refers only high-severity patients, but has no effect on health inequities when the GP refers all patients