Optimal Contract Design for End-of-Life Care Payments

Muyan Jiang, Ying Chen, Xin Jennifer Chen, Javad Lavaei, Anil Aswani

Abstract:

A large fraction of total healthcare expenditure
occurs due to end-of-life (EOL) care, which means it is
important to study the problem of more carefully incentivizing
necessary versus unnecessary EOL care because this has the
potential to reduce overall healthcare spending. This paper
introduces a principal-agent model that integrates a mixed
payment system of fee-for-service and pay-for-performance in
order to analyze whether it is possible to better align healthcare
provider incentives with patient outcomes and cost-efficiency in
EOL care. The primary contributions are to derive optimal
contracts for EOL care payments using a principal-agent
framework under three separate models for the healthcare
provider, where each model considers a different level of risk
tolerance for the provider. We derive these optimal contracts by
converting the underlying principal-agent models from a bilevel
optimization problem into a single-level optimization problem
that can be analytically solved. Our results are demonstrated
using a simulation where an optimal contract is used to price
intracranial pressure monitoring for traumatic brain injuries.