Dynamic Consequences of Performance-Based Payment Systems in Public Hospitals

The goal of performance‐based payment system (PBPS) is to increase the efficiency of healthcare resources by paying physicians and hospitals for increased performance. PBPS in Turkey has been implemented since 2004. After 10 years, assessments about the effectiveness of this system have been mixed. The purpose of this study is to model and analyze the dynamic impacts of PBPS on the behaviors of public hospitals and their physicians. The model includes physicians' interactions with patients, revenue pressures on physicians and the resulting impacts on health outputs. In order to increase productivity, PBPS encourages physicians to perform more medical activity. Thus, a physician who experiences revenue pressure may increase his or her medical activity and attach less importance to quality. Resulting inadequate treatments and wrongly diagnosed patients would have negative effects on health quality. On the other hand, physicians who have no revenue concerns may attach the quality of healthcare absolute priority, undermining higher productivity. This attitude may result in hospital crowding, hence crowding pressures on physicians. Such conflicting feedback forces are included in the model to investigate the impacts of PBPS on health outputs. Simulation results obtained agree with some of the dynamic behaviors recently observed and discussed in Turkish healthcare.