Beyond Fee-for-Service: How Comprehensive Contracts Can Transform Primary Care

E. Lerzan Örmeci, Koç University, Dept of Industrial Engineering

We study comprehensive contracts (CCs), which are performance-based reimbursement schemes for managing patients with chronic conditions. These contracts aim to transform primary care beyond the traditional fee-for-service model by inducing providers to offer various services, including preventive care, chronic disease management, and care coordination. We develop a stylized Principal-Agent model to study primary care practice (PCP) capacity allocation under a comprehensive contract. The contract is motivated by performance-based contracting systems for primary care. We first show that a pure fee-for-service contract fails to induce PCPs to allocate capacity for comprehensive care. We then analyze a comprehensive contract offering a capitation payment, a performance bonus, or a combination and show that such a contract is necessary but insufficient to induce a comprehensive care effort. We identify PCP effectiveness in delivering comprehensive care as crucial in designing comprehensive contracts. We show that offering CCs to highly effective PCPs enhances access to healthcare and improves outcomes. Characterization of the optimal CCs shows that they fail to achieve the first-best outcomes, even under the risk-neutrality of the PCP. Our numerical analysis suggests that a comprehensive contract with a strict budget limitation could fail to attract the majority of PCPs, and the payer should consider improving the revenue potential of PCPs for meaningful participation.

Joint work with A. Mete Özbek, Hessam Bavafa, Evrim Didem Güneş.

Short Bio

E. Lerzan Örmeci received BSc and MSc degrees from the Industrial Engineering Department of METU in 1990 and 1993, respectively. She completed her PhD in Operations at Case Western Reserve University in 1998. She joined the department of Industrial Engineering at Koç University in 2001. Previously, she worked as a research fellow at Eurandom (Eindhoven, Netherlands) and as an instructor at Erasmus University (Rotterdam, Netherlands). She was a visiting scholar at Wharton School of Management (University of Pennsylvania) and HEC Paris. Her research focuses on stochastic modeling and analysis of healthcare systems.

Venue

Halim Doğrusöz Auditorium (IE03) on October 18th, Friday at 4 p.m.