This chapter looks at options for paying doctors, hospitals and other providers and the compensation mechanisms that might be suitable for enhancing the quest for quality and accessibility. It includes a reflection on performance-related pay, professionalism, innovative payment schemes and their effects on outcomes and cost.

The chapter reviews different forms of payment – income, fee-for-service, case-based diagnosis-related groups (DRGs) – and includes a discussion on paying at the point of service (co-payment, user fee) and how such payments support the different goals of accessibility, quality and patient orientation. There will also be a more detailed discussion on the pros and cons of pay-for-performance and target setting coupled with bonuses and what this might mean for the professional ethics of doctors. What could (and indeed) should be the role of the payer (be it a state-run system, a mandatory health fund or a private insurance scheme) in accrediting providers, controlling for quality and ensuring equitable access to care?

Strategic purchasing of healthcare

The role of health insurance organizations goes way beyond that of being financial intermediaries that collect contribution payments and reimburse claims. Health insurance companies need to develop contractual relations with health providers and become active purchasers of services.

When a health insurance company pays for medical services, both provider and consumer are acting independently of economic deliberations at the point of service: the consumer will not care about the different prices for different services and will therefore ask for the best service available, independent of its price. The provider will also only consider whether a service is covered by the insurance and will not necessarily differentiate between different services and their respective appropriateness in given situations. Therefore, in a healthcare market there is very limited probability that market mechanisms will produce optimal prices.

Health insurance companies tend to substitute these normal market mechanisms: they set incentives for the provider by offering a suitable volume of services at the appropriate level of quality for a fair price. All types of provider relationship will therefore have certain distorting effects on the price, volume or quality of healthcare services as well as on the behaviour of patients. It is obvious, then, that provider relations will need constant adap-tation to developments in the healthcare market.