This paper examines the impact of two reimbursement schemes, fee-for-service and bundled payment, on the social welfare, the patient revisit rate, and the patient waiting time in a public healthcar...

/pdf/the-impact-of-reimbursement-policy-on-social-welfare-revisit-3lllxqa00n.pdf

The Impact of Reimbursement Policy on Social Welfare, Revisit Rate, and Waiting Time in a Public Healthcare System: Fee-for-Service Versus Bundled Payment

In services, customers provide significant inputs into the production process. In particular, these inputs may be the customers themselves participating in the service delivery. Although many service firms have explored different ways of involving customers in their production process, there is no clear guideline for the design of such coproductive systems. In this paper, we develop an analytical model of joint production between a service provider and a customer and characterize how a service firm should design its coproductive system. We show that, as a task becomes more standard, it is desirable to decrease the degree of interaction between the provider and the customer by making their efforts more substitutable and to allocate most of the work to whoever is the most efficient. Conversely, as a task becomes less standard, it is optimal to increase interaction by making efforts more complementary and to balance the work allocation. Our analysis gives rise to a service-process framework with three archet...

Optimal Design of Coproductive Services: Interaction and Work Allocation

Motivated by a collaborative study with one of the most comprehensive ocular imaging programs in the United States, we investigate the underlying three-way trade-off among operational, clinical, and financial considerations in physicians' decisions about ordering imaging tests. Laboratory tests may be processed in parallel and thus have a limited effect on patients' waiting times; imaging tests, by contrast, require patient presence and thus directly influence patients' waiting times. We use a strategic queueing framework to model a physician's decision of ordering imaging tests and show that insurance coverage is the key driver of overtesting. Our further analysis reveals the following: i Whereas existing studies hold that lower out-of-pocket expenses lead to higher consumption levels, we refine this statement by showing the copayment and the coinsurance rate drive the consumption in different directions. Thus, simply expanding patient cost sharing is not the solution to overtesting. ii Setting a low reimbursement ceiling alone cannot eliminate overtesting. iii The joint effect of misdiagnosis concerns and insurance coverage can lead to both overtesting and undertesting even when no reimbursement ceiling exists. These and other results continue to hold under more general conditions and are therefore robust. We enrich our model along two extensions: one with patient heterogeneity in diagnostic precision, and the other with disparities in health insurance coverage. Our findings have implications for other healthcare settings with similar trade-offs.

Imaging Room and Beyond: The Underlying Economics Behind Physicians' Test-Ordering Behavior in Outpatient Services

We consider a system in which two competing servers provide customer-intensive services and the service reward is affected by the length of service time. The customers are boundedly rational and choose their service providers according to a logit model. We demonstrate that the service provider revenue function is unimodal in the service rate, its decision variable, and show that the service rate competition has a unique and stable equilibrium. We then study the price decision under three scenarios with the price determined by a revenue-maximizing firm, a welfare-maximizing social planner, or two servers in competition. We find that the socially optimal price, subject to the requirement that the customer actual utility must be non-negative, is always lower than the competition equilibrium price which, in turn, is lower than the revenue-maximizing monopoly price. However, if the customer actual utility is allowed to be negative in social optimization, the socially optimal price can be higher than the other two prices in a large market. [ABSTRACT FROM AUTHOR]

Quality-Speed Competition in Customer-Intensive Services with Boundedly Rational Customers

Technologies have been driving improvements in logistics and transportation Focusing on a third-party logistics (3PL) firm’s technology innovations supported by external equity financing, we examine how the innovations can benefit the supply chain, and how the supply chain members should respond with coordinated operational decisions More specifically, we consider a platform supply chain where a supplier sells a single product on an online platform provided by a retailer, and then hires a 3PL firm for transportation services The 3PL firm may choose to raise capital through equity financing from external financial institutions, which can be used to support technology innovations to reduce the transportation cost The financing decision of the 3PL interacts with operational decisions of the platform supply chain via possible cost savings We start with investigating the supply chain coordination by characterizing the optimal operational decisions of the three firms under any given equity financing strategy Acting non-cooperatively, the 3PL firm and the online retailer first determine the freight charge and revenue sharing respectively, in light of which the supplier’s decision on the retail price We then move to the 3PL firm internally and derive the optimal equity financing strategy Our analytical results show that the supply chain efficiency is dependent on the cost allocation between the retailer and the other two firms, but independent of the cost allocation between those two firms It is also revealed that the original shareholders of the 3PL firm always have a chance to benefit from an appropriate financing strategy, and the optimal financing strategy may depend discontinuously on supply chain parameters Finally, we check the robustness of our model and show that all key findings remain unchanged when relaxing the deterministic cost reduction to an uncertain one

3PL firm’s equity financing for technology innovation in a platform supply chain

In many services, for example, website or landscape design, the value or quality derived by a customer depends upon the service time, and this valuation differs across customers. Customers procure the service based on the expected value to be delivered, prices charged, and the timeliness of service. We investigate the performance of the optimal pricing scheme as well as two commonly used pricing schemes (fixed fee and time-based pricing) for such services on important dimensions such as revenue, demand served, and utilization. We propose a novel model that captures the above features and wherein both service rate and demand are endogenous and functions of the pricing scheme. In particular, service time is an outcome of the pricing scheme adopted and the heterogeneous valuations of customers, unlike in the queueing-based pricing literature. We find that the service system may benefit from a greater variance in consumer valuations, and the performance of pricing schemes is impacted by the shape of the distribution of customers' valuation of service time and the responsiveness desired by customers. Both the fixed fee and time-based schemes do well relative to the optimal pricing scheme in terms of revenue in many plausible scenarios, but there are substantial differences between the pricing schemes in some important operational metrics. For instance, the fixed fee scheme serves more customers and has higher utilization than the time-based scheme. We also explore variants of the fixed and time-based schemes that have better revenue performance and show that the two-part tariff which is a combination of fixed and time-based pricing can do as well as the optimal scheme in terms of revenue.

Pricing and Operational Performance in Discretionary Services

Assembly systems are composed of suppliers selling components to an assembler, who configures a final product for sale to the market. This is commonplace in many supply chains, such as healthcare a...

Dynamic Stable Supplier Coalitions and Invariance in Assembly Systems with Commodity Components

Stable alliance structures among monopoly component-suppliers in a decentralized assembly system are somewhat well understood. However, when there are competing suppliers for any particular component, less is known about such alliances. The intent of this paper is to address some of the theoretical issues that pose challenges in analyzing stable supplier coalitions in such assembly systems. We examine a simple assembly system in which n suppliers sell complementary components to a downstream assembler, who faces a price-sensitive deterministic demand. We assume that k of these suppliers sell commodity components and the remaining n-k suppliers are monopolists. We analyze alliance/coalition formation between suppliers, using a two stage approach that is common in the literature. When not all suppliers are monopolists, predictions on stable supplier alliances is fraught with technical difficulties. We resolve these by showing an asymptotic invariance result. We use this in Stage 1 of the game, to predict the structure of the stable supplier coalitions using a dynamic version of stability that accounts for players' farsightedness.

Significant evidence has emerged in the past few decades that consumers are boundedly rational. A well-known departure from rationality is the inclination to account for sunk costs in making decisions. We compare two commonly used pricing schemes, fixed fee and time-based pricing, when customers exhibit sunk cost bias in a service setting with diagnosis and treatment phases. We consider two customer classes, sophisticated and naive, both of whom experience the sunk cost bias but are different in their awareness of the bias. We find that a monopolist service provider adopts the time-based pricing scheme if the sunk cost bias is small and adopts the fixed fee scheme otherwise. In a competitive setting, a time-based scheme is more likely in markets with either sophisticated or naive customers. Competition mitigates the sunk cost bias and makes the time-based scheme more attractive than for a monopolist. When the market consists of both sophisticated and naive customer classes, it is not optimal to differentiate between naive and sophisticated customers by offering both pricing schemes. Paradoxically, while a monopolist is unable to differentiate between the two customer classes using the two pricing schemes, competing providers are able to differentiate while enjoying positive profits.

https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID2657291_code1603886.pdf?abstractid=2657291&mirid=3

Pricing Diagnosis-Based Services When Customers Exhibit Sunk Cost Bias

This paper analyzes the contracting of maintenance services provided by an original equipment manufacturer (OEM) to an operator for a device. The service provider can exert different levels of maintenance effort during the course of the contract and the device's reliability (uptime) is influenced by these levels. However, the service provider's effort level is non-contractible. We obtain the optimal design of performance-based maintenance contracts in this context by singling out a unique uptime-guarantee contract structure that contains profit-maximizing contracts in all situations. With the optimal contract structure, the service provider guarantees 100% uptime and compensates the operator's downtime at a higher unit rate than it charges him/her for maintenance services (with the factor of inverse expected downtime under no contract). This finding shows that some of the well-known performance-based contract structures used in practice (e.g., pay-for-performance contracts) can be sub-optimal for the OEMs. When the operator's revenue rate from the device is known to the service provider, the optimal contract compensates for any lost revenue due to downtime yet leaves the operator with zero expected profit from the contract. Under asymmetric information, we provide a closed-form formula for calculating the optimal compensation rate. We also demonstrate the advantages and limitations of offering menus of contracts to increase the service provider's expected profits.

Chunyang Tong

Papers

Pricing and Operational Performance in Discretionary Services

Dynamic Stable Supplier Coalitions and Invariance in Assembly Systems with Commodity Components

Dynamic Stable Supplier Coalitions and Invariance in Assembly Systems with Commodity Components

Pricing Diagnosis-Based Services When Customers Exhibit Sunk Cost Bias

Optimal Design of Uptime-Guarantee Maintenance Contracts