Incentive Schemes for Readmissions Reduction in Coordinating Reverse Referral Healthcare Services

The success of reverse referral service, whereby a city hospital transfers patients finishing operations to a community one for follow-up treatment, generally depends on the collaboration of these two levels of hospitals. Unfortunately, the free-riding effect in such collaboration may lead to an increment in readmissions. This paper investigates the coordination strategy between themand takes three readmissions-reduction incentive mechanisms (fee-for-service (FFS), bundled payment (BP), and penalty contract (PC)) into consideration. Our results indicate that BP rather than FFS can coordinate both hospitals' effort decisions with their first-best when city hospital's effort cost is relatively high. Furthermore, we surprisingly find that PC, with incentive stronger than that of FFS and BP, cannot coordinate decentralized system in reverse referral service, contrary to previous result in forward referral setting. However, we find that PC can give rise to improvement for readmission reduction at a slight increase of total costs relative to centralized case