A game theoretic setting of capitation versus fee-for-service payment systems

Abstract

We aim to determine whether a game-theoretic model between an insurer and a healthcare practice yields a predictive equilibrium that incentivizes either player to deviate from a feefor-service to capitation payment system. Using United States data from various primary care surveys, we find that non-extreme equilibria (i.e., shares of patients, or shares of patient visits, seen under a fee-for-service payment system) can be derived from a Stackelberg game if insurers award a non-linear bonus to practices based on performance. Overall, both insurers and practices can be incentivized to embrace capitation payments somewhat, but potentially at the expense of practice performance.