Multiple pricing for personal assistance services

Third-party payers often reimburse health care providers based on prospectively set prices. Although a key motivation of prospective payment is to contain costs, this paper shows that this aspect crucially depends on the design of the pricing scheme due to the well-known incentives of patient selection (or “dumping”). This paper provides a general theoretical framework where heterogeneous users are served by either private for-profit or public providers, each paid an hourly compensation by a third-party payer. The private, but not the public providers may select patients. It is demonstrated that this realistic feature of the model implies that total costs depends on the number of prices. The features of the model is illustrated using the Swedish system of personal assistance services as a motivating example. Numerical results show that marginal adjustments to the current uniform pricing scheme would lead to substantial savings. • Prospective payments in health care contain costs, but may imply “dumping”. • We analyze a theoretical model where users are served by private or public providers . • We show that total costs depend on the number of prices in the multiple pricing scheme. • The features of the model are illustrated using a Swedish health care system. • We show that small adjustments in the current pricing scheme lead to large savings.