Abstract for: How Does Fee-for-Service Payment System Affect Healthcare Expenditures?

Fee-For-Service (FFS) is one of the conventional payment systems which is applied alone or mixed in many countries. The goal of this system is to increase efficiency through financial incentives. However, excessive services and unnecessary or inappropriate care may be encouraged, which adversely affects healthcare expenditure and quality. Although many system dynamics (SD) models are investigating the dynamic of health expenditures, they rarely investigate the effect of payment systems on health expenditures. This paper responds to this theoretical gap by developing a qualitative SD model that investigates crucial feedback loops in FFS. The model shows how interaction between 27 loops (14 positive loops and 13 balancing loops) embedded in FFS can increase health care expenditures without necessarily improving the population’s health. Quantitative extensions may result in a better understanding and policy testing can help decision-makers to follow more effective interventions. Also, loop analysis (and eliminating unimportant substructures and ineffective links/feedbacks) can help to simplify the model, distil essential structures, and increase the quality and understanding of the model.