THE HOSPITAL-PHYSICIAN INTERACTION IN US HOSPITALS - EVOLVING PAYMENTSCHEMES AND THEIR INCENTIVES

Unlike the case in several European countries, where physicians are sa laried employees of the hospital, in the U.S. physicians are independe nt agents who are granted admitting privileges by their affiliated hos pitals. Hospitals and physicians bill separately for their components of inpatient care, and patients or insurers compensate them separately . This has raised questions about the degree of efficiency and coopera tion between the agents. In the first part of this paper we review pre vious models that examined this interaction under cost-based and prosp ective reimbursement. In the second part, we consider an experimental mechanism ('price-bundling') in which payers allow a single payment fo r an episode of care, leaving the physician and the hospital to negoti ate over how the fee should be split. Modelling this as a Nash bargain ing game, we cast doubt on the notion that price bundling can ensure c ooperation and efficiency from the perspective of the players, and sug gest other incentives that may have led hospitals to participate in th e experiment.