A DEA Model to Optimize Insurance Payment Plans based on PACs

Healthcare industry has evolved dramatically over the time. From being a “cottage industry” to an “organized industry” has brought lot of changes. The changes have been both good and bad. Among the problems that have surfaced in past couple of decades, rising healthcare cost has been one of the most significant. The rising healthcare cost has been documented to be a symptom of several factors. Since the inception of healthcare as an organized industry several payment models for providers and hospitals have been adopted. Current healthcare reforms have proposed new payments models to curb the rising cost and provide consumer oriented healthcare.

The proposed payment models such as, bundled, capitation, PROMETHEUS, pay-for-performance and traditional model of fee-for-service, all have their merits and demerits. Some are good for chronic and others for acute conditions, some provide bonuses to physicians for high quality and efficient care where as others pay more for number of services used. Our literature review has highlighted the lack of systemic study to analyze the effect of payment models on reimbursement of physicians and hospitals. This study shows that no “single model” can be implemented to serve all the stakeholders. The proposed optimization model is a strategic tool that aligns dynamic patient population with existing reimbursement models and provides information to providers to help them design favorable contracts with insurers. The model also has a potential to help improve planning and operational activities of hospitals.