Improving Patient Access to Care: Performance Incentives and Competition in Healthcare Markets

Performance-based compensation is gaining popularity as a mechanism for incentivizing providers of health-care services to improve the quality of patient care. This paper investigates the effects of introducing performance-based incentives in a competitive healthcare market. In particular, we consider a market in which a payer (e.g. a government agency) applies a compensation contract to competing healthcare service providers in order to achieve a certain level of patient access to care, as measured by the expected time patients have to wait to receive care. In our model, we use M/M/1 queueing dynamics to describe patient service processes and assume that patient demand for care delivered by a particular provider is increasing in the level of access to care the provider ensures and decreasing in the levels of access to care at competing providers. Our analysis indicates that the presence of competition between providers may signi cantly alter the intended effect of performance-based incentives. In particular, we show that the joint effect of incentives and competition depends on two factors: 1) the aggressiveness of patient access targets that the payer imposes on providers, and 2) patient sensitivity to the level of access to care. When the payer uses a "soft" approach to performance-based compensation by incentivizing but not requiring that providers reach an access-level target, the incentives and competition can produce opposing effects on patient access to care when aggressive service-level targets are used in the presence of access-sensitive patients or when moderate service-level targets are introduced in environments where patients a exhibit low degree of sensitivity to the level of access to care. In particular, we show that while moderate service-level targets can lead to an improvement in patient access to care when applied to a monopolistic provider, competition in settings with access-insensitive patients may diminish or even reverse this improvement. Under the "strict" approach to performance-based compensation, when the payer designs performance incentives to minimize the cost of imposing a common access-level target on all providers, the impact of competition on the level of incentivization required is also influenced by the patient population type: for access-sensitive patients, competitive pressure lowers the level of incentivization required to achieve a particular level of patient access to care, while for patients with low access sensitivity the effect of competition is to increase the incentivization level required. At the same time, the reduction in payers' costs resulting from the presence of competition is more pronounced in environments with access-insensitive patients.