Reference Pricing for Healthcare Services

Problem definition: The traditional payment system between an insurer and providers does not incentivize to limit their prices, nor patients choose less expensive providers, hence contributing high expenditures. Reference pricing has been proposed as a way better align incentives control the rising costs of healthcare. In this system, determines maximum amount that can be reimbursed for procedure (reference price). If patient selects provider charging more than reference price, is responsible entire portion above it. Our goal understand how performs relative systems. Academic/practical relevance: results help healthcare leaders when potential successful alternative mechanism, what its impact on different stakeholders is, best design Methodology: We propose game-theoretical model analyze scheme. incorporates chooses multiple competing price-setting heterogeneous who select based multinomial logit choice model. Results: find highest-priced reduce prices under pricing. Moreover, often outperforms fixed variable systems both in terms expected utility cost but incurs loss providers’ profit. Furthermore, we show general higher unless public nonprofit weighs much own cost. Managerial implications: Overall, our findings indicate constitutes promising “shoppable” services long act similar insurer.