Striking the right balance between patient and provider incentives in humanitarian healthcare services

Improving healthcare services in developing countries can be difficult, especially in an era where funding for humanitarian organizations is stagnating or even decreasing. In today’s environment, it’s critical for those humanitarian organizations to use their budget as efficiently and effectively as possible. New research co-authored by Gies College of Business professor Mili Mehrotra suggests striking the right balance between provider incentives and patient incentives can increase healthcare program performance by as much as 20 times.

Depending on the type of service offered, a program can focus more on structural quality or process quality. ‘Structure’ refers to physical infrastructure, medical supplies, and cleanliness – a major priority for HIV services and lab testing. On the other hand, the authors define ‘process’ as the quality of interaction between patients and provider, which is of paramount importance for prenatal care and family planning programs. Humanitarian organizations can offer either supply-side incentives to the provider to encourage improvements infrastructure or staffing, or they can offer demand-side incentives to the patient to encourage them to seek care.

“Both of these incentive systems are important in their own, unique ways,” said Mehrotra, associate professor of business administration at Gies Business. “Supply-side incentives are critical in ensuring that facilities are able to provide highly trained workers and a strong infrastructure, but that’s not enough incentive by itself for patients to seek care. Demand-side incentives are essential to overcoming the barriers such as lack of awareness, transportation costs, and opportunity cost of seeking care.”

In their paper, “Value of Combining Patient and Provider Incentives in Humanitarian Healthcare Service Programs,” Mehrotra and her co-author show that purely supply-side or purely demand-side incentives can be extremely inefficient, especially if used on the wrong type of service. For example, subsidizing only infrastructure will not effectively encourage a woman to seek prenatal care.

“Most financial incentives are applied to only one side – either supply or demand – and oftentimes they’re not applied to the right type of service,” said Mehrotra. “Pure supply-side incentive schemes can be effective for services such as vaccinations or simple lab tests. Pure demand-side incentives are optimal for services where personal care is a priority. When funds are limited, as they often are in these developing countries, it’s critical that the funds are allocated in the most efficient way possible.”

Ultimately, the authors suggest offering the right combination of incentives to the patient and the provider can improve program performance by as much as 20 times depending on the type of healthcare service offered. Here program performance is measured by quality adjusted program coverage. Such an improvement is possible as there comes a point where the infrastructure and medical supply quality have reached an acceptable threshold. Beyond that point, increasing funding for those purposes will not proportionally increase their quality, and the marginal increase in the program performance will be negligible beyond this threshold. It’s no longer money well-spent. In a sequential (naïve) approach, at this point any extra funding would be diverted toward incentivizing patients to ensure they are motivated to seek care. However, this sequential approach will result in a suboptimal program performance. Therefore, the authors’ model simultaneously allocates funding toward supply side and demand side to achieve the best program performance given the funding limitations.

“Moreover, it is definitely counterintuitive, but as more funding becomes available, in some cases an increase in the demand-side incentive should be accompanied by a reduction in the supply-side incentive,” Mehrotra said. “For structure-focused programs like HIV testing, moving to this optimal scheme can increase program performance by 78% on average. The difference is even larger for process-focused programs like prenatal care; here the optimal scheme led to 103% increase in program performance on average.”

“Value of Combining Patient and Provider Incentives in Humanitarian Health Care Service Programs” by Mili Mehrotra (University of Illinois, Gies College of Business) and Karthik V. Natarajan (University of Minnesota) has been accepted for publication in Production and Operations Management.