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Outcome versus service based payments in health care: lessons from African traditional healers

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  • Kenneth L. Leonard
  • Joshua Graff Zivin

Abstract

We compare the more common physician compensation method of fee‐for‐service to the less common payment‐for‐outcomes method. This paper combines an investigation of the theoretical properties of both of these payment regimes with a unique data set from rural Cameroon in which patients can choose between outcome and service based payments. We show that consideration of the role of patient effort in the production of health leads to important differences in the performance of these contracts. Theory and empirical evidence show that when illnesses require (or are responsive to) large amounts of both patient and practitioner effort, outcome based payment schemes are superior to effort based schemes. The traditional healer – a practitioner who offers health services on an outcome‐contingent basis – is advanced as an important example of how patient effort can be better understood and tapped in health care. Copyright © 2004 John Wiley & Sons, Ltd.

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  • Kenneth L. Leonard & Joshua Graff Zivin, 2005. "Outcome versus service based payments in health care: lessons from African traditional healers," Health Economics, John Wiley & Sons, Ltd., vol. 14(6), pages 575-593, June.
    • Handle: RePEc:wly:hlthec:v:14:y:2005:i:6:p:575-593
    DOI: 10.1002/hec.956
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    References listed on IDEAS

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    1. Gaynor, Martin, 1994. "Issues in the Industrial Organization of the Market for Physician Services," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 3(1), pages 211-255, Spring.
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    3. Leonard, Kenneth L., 2003. "African traditional healers and outcome-contingent contracts in health care," Journal of Development Economics, Elsevier, vol. 71(1), pages 1-22, June.
    4. Bengt Holmstrom, 1982. "Moral Hazard in Teams," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 324-340, Autumn.
    5. Grossman, Sanford J & Hart, Oliver D, 1983. "An Analysis of the Principal-Agent Problem," Econometrica, Econometric Society, vol. 51(1), pages 7-45, January.
    6. McGuire, Thomas G., 2000. "Physician agency," Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 9, pages 461-536, Elsevier.
    7. Mwabu, Germano M., 1986. "Health care decisions at the household level: Results of a rural health survey in Kenya," Social Science & Medicine, Elsevier, vol. 22(3), pages 315-319, January.
    8. A. J. Culyer & J. P. Newhouse (ed.), 2000. "Handbook of Health Economics," Handbook of Health Economics, Elsevier, edition 1, volume 1, number 1.
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    Cited by:

    1. Leonard, Kenneth L, 2007. "Learning in Health Care: Evidence of Learning about Clinician Quality in Tanzania," Economic Development and Cultural Change, University of Chicago Press, vol. 55(3), pages 531-555, April.
    2. Habtom, G., 2006. "Health Care Governance in Developing Countries : The Case of Eritrea," Other publications TiSEM 289e6243-bb73-4d66-a6a1-8, Tilburg University, School of Economics and Management.
    3. Leonard, Kenneth L., 2009. "The cost of imperfect agency in health care: Evidence from rural Cameroun," Journal of Development Economics, Elsevier, vol. 88(2), pages 282-291, March.
    4. Sato, Azusa, 2012. "Does socio-economic status explain use of modern and traditional health care services?," Social Science & Medicine, Elsevier, vol. 75(8), pages 1450-1459.
    5. Azusa Sato & Joan Costa-Font, 2014. "The Hedonic Procedural Effect of Traditional Medicines," Journal of Happiness Studies, Springer, vol. 15(5), pages 1061-1084, October.
    6. Lucia Corno, 2014. "Learning (or Not) in Health-Seeking Behavior: Evidence from Rural Tanzania," Economic Development and Cultural Change, University of Chicago Press, vol. 63(1), pages 27-72.
    7. Udo Schneider, 2005. "Asymmetric Information and Outcome-based Compensation in Health Care – Theoretical Implications," HEW 0501006, University Library of Munich, Germany.

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    More about this item

    JEL classification:

    • I1 - Health, Education, and Welfare - - Health
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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