Physicians Self Selection of a Payment Mechanism: Capitation versus Fee-for-Service

Abstract

The main question raised in this paper is whether GPs should self select their payment mechanism or not. To answer it, we model GPs’ behavior under the most common payment schemes (capitation and fee-for-service) and when GPs can select one among those. Our analysis considers GPs heterogeneity in terms of both ability and sense of professional duty. We conclude that when savings on specialists costs are the main concern of a regulator, GPs should be paid on a fee-for-service basis. Instead, when failures to identify severe conditions are the main concern, then payment self selection by GPs can be optimal.

Keywords: GPs, gatekeeping, payment scheme, self selection, ability, professional duty

JEL Classification: I18, J33