Abstract
The use of resources to produce hospital services raises three questions, the first of which is: how do you make efficient use of these resources to satisfy “unlimited” needs with limited services? The second is: how equal and equitable is the health system? The third is: what kind of relationship is there between efficiency, equality, and equity? The financing of healthcare services answers the question “who pays for health care?” while the payment methods or reimbursement answers the question “how are the health providers paid?” Income tax, social security contributions, and out-of-pocket money are the main means of financing hospitals. Each of them can enhance equity and equal access to healthcare services. Payment methods can be split into retrospective and prospective methods. The main retrospective method is fee-for-service while some of the prospective methods are pay per procedure, pay per day, pay per case, global budgeting, and capitation. A relatively new prospective method is DRG (Diagnosis-Related Group) payment which reimburses the hospital a fixed amount for its services to a given patient for a given treatment. A pay-for-performance (P4P) program complements the prospective method and aims to incentivize hospitals to improve the quality of their services and efficiency.
In particular, this chapter:
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Analyzes the concepts of efficiency, equality, and equity in the healthcare sector
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Examines in an analytical way the different methods of financing and reimbursing hospitals.
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Notes
- 1.
This definition is in the web page of the WHO: https://www.who.int/topics/health_equity/en/.
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See Katz and Rosen (1998, p. 386–388).
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The allocation is considered to be efficient if the marginal rate of transformation between two goods is equal to the marginal rate of substitution between two goods (Katz & Rosen, 1998, p. 387). The marginal rate of transformation (or the marginal rate of substitution) is the rate at which the economy can exchange one good with another. More specifically, the marginal rate of substitution refers to the producers of goods and services while the marginal rate of transformation concerns the consumers of goods and services.
- 4.
Pareto Improvement occurs if the reallocation of goods makes one person better off without making anyone else worse off.
- 5.
See Barr (2004, p. 44–51).
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The social indifference curve is the locus of different combinations of utility of person A and person B for which the total utility is constant.
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Economic efficiency is achieved when all resources are used efficiently and produce the maximum output at the minimum cost.
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- 9.
See Wagstaff and Doorslaer (2000).
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- 11.
In medical savings, individuals contribute a proportion of their income. This amount of money is spent at the time that persons use health services (Mossialos & Dixon, 2002, p. 21). There is a huge amount of literature on the role of medical savings (among others, see Scheffler and Yu, 1998; Hsiao, 1995).
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Out-of-pocket money includes costs paid by the consumer at the time of using the health services. They consist of formal and informal payments.
- 13.
The cost containment policy consists of actions that aim to control operational costs.
- 14.
See World Health Organization. How are hospitals funded and which payment method is best? Summary of a HEN network member’s report. http://www.euro.who.int/en/data-and-evidence/evidence-informed-policy-making/publications/hen-summaries-of-network-members-reports/how-are-hospitals-funded-and-which-payment-method-is-best. These main types of reimbursement schemes are also presented by Mathes et al. (2014, p. 2).
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Chletsos, M., Saiti, A. (2019). Financing Hospitals. In: Strategic Management and Economics in Health Care. Springer, Cham. https://doi.org/10.1007/978-3-030-35370-4_10
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