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Modeling the Impact of an Outcome-Oriented Reimbursement Policy on Clinic, Patients, and Pharmaceutical Firms

Graduate School of Management, University of California, Irvine, California 92697
The Anderson School, University of California, Los Angeles, 110 Westwood Plaza, Los Angeles, California 90095
rso{at}uci.edu
chris.tang{at}anderson.ucla.edu

Tackling the steep increase in drug costs is an especially important issue among many health care providers and insurers. To entice the clinics to become more cost efficient, the U.S. federal government, as well as many HMOs, have developed various cost containment initiatives recently. However, the impact of these initiatives on the patients' well-being, the clinic's profitability, and the pharmaceutical firm's profitability has not been formally analyzed. In this paper we develop a mathematical model that is intended to examine the impact of a reimbursement policy for drug usage. Despite the simplistic structure of our model, the analysis enhances our understanding of the joint impact of the reimbursement policy on the patients, the clinic, and the pharmaceutical firm. Thus, our analysis can provide valuable information for evaluating the effectiveness of implementing such a reimbursement policy. In addition, we utilize the data gathered from a clinic to help support the assumptions and results of the underlying model.

Key Words: health care; mathematical model; management
History: Received: March 1, 1999;

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