THE HOSPITAL-PHYSICIAN INTERACTION IN US HOSPITALS - EVOLVING PAYMENT SCHEMES AND THEIR INCENTIVES

Unlike the case in several European countries, where physicians are salaried employees of the hospital, in the U.S. physicians are independent agents who are granted admitting privileges by their affiliated hospitals. Hospitals and physicians bill separately for their components of inpatient care, and patients or insurers compensate them separately. This has raised questions about the degree of efficiency and cooperation between the agents. In the first part of this paper we review previous models that examined this interaction under cost-based and prospective reimbursement. In the second part, we consider an experimental mechanism ('price-bundling') in which payers allow a single payment for an episode of care, leaving the physician and the hospital to negotiate over how the fee should be split. Modelling this as a Nash bargaining game, we cast doubt on the notion that price bundling can ensure cooperation and efficiency from the perspective of the players, and suggest other incentives that may have led hospitals to participate in the experiment.