Hospital Payment Systems

Payment systems (PS) are at the core of the intermediation function between payers and recipients of care, which is complex because of the lack of functioning true markets in healthcare, and where the final outcome is significantly disconnected from what is paid for. There is a major distinction between retrospective and prospective PS. Incentives vary in complex ways, and correspondingly with complex results, between line-item budgets, per diem, global budgets, capitation, diagnosis-related groups, fee-for-service, and pay-for-performance. There are often trade-offs between providing incentives for enhancing quality and containing costs, risk selection and efficiency, creating producer surplus and inducing supply, and governance control and flexibility. Quality top-ups look like a promising route in systems which are neither fully prospective nor retrospective, and which relate to the business model employed.