Managing Physician Service Rate and Patient Welfare in a Healthcare System with Endogenous Admissions and Readmissions

To contain healthcare cost and improve quality, there is an on-going debate regarding the impact of different reimbursement schemes on patient welfare. In this paper, we examine two commonly used reimbursement schemes: (1) a Fee-For-Service (FFS) reimbursement scheme under which health care providers (HCPs) are paid for each service they provide; and (2) a Bundled Payment (BP) reimbursement scheme under which the HCP receives a lump sum payment for an entire episode of care (regardless of how many times a patient is readmitted to the system). To examine the interplays among the patients' endogenous'' decision about whether or not to seek treatment from a designated HCP, the HCP's service rate decision, and the funder's reimbursement payment decision under the FFS and BP schemes, we present a model by using an M/M/1 queue with Bernoulli feedback to capture the patients' readmission process. We determine the equilibrium outcomes (the patients' endogenous arrival rate, the HCP's service rate, and the funder's reimbursement under both the FFS and BP schemes). We find that, in general, the BP scheme improves the patient welfare and service quality (i.e., a lower readmission rate) but the FFS scheme results in a shorter waiting time. However, when the funder's budget is large and the patient population is medium, both schemes are equally efficient in terms of all performance metrics including the patient welfare, service quality, the waiting time per visit and the total waiting time.