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A Game Model for Medical Service Pricing Based on the Diagnosis Related Groups

Duan, J.; Lin, Z.; Jiao, F.

A Game Model for Medical Service Pricing Based on the Diagnosis Related Groups Thumbnail


J. Duan

F. Jiao


Background: Currently there are various issues that exist in the medical institutions in China as a result of the price-setting in DRGs, which include the fact that medical institutions tend to choose patients and that the payment standard for complex cases cannot reasonably compensate the cost. Objective: The main objective is to prevent adverse selection problems in the operations of a diagnosis-related groups (DRGs) system with the game pricing model for scientific and reasonable pricing. Methods: The study proposes an improved bargaining game model over three stages, with the government and patients forming an alliance. The first stage assumes the alliance is the price maker in the Stackelberg game to maximize social welfare. Medical institutions are a price taker and decide the level of quality of medical service to maximize their revenue. A Stackelberg equilibrium solution is obtained. The second stage assumes medical institutions dominate the Stackelberg game and set an optimal service quality for maximizing their revenues. The alliance as the price taker decides the price to maximize the social welfare. Another Stackelberg equilibrium solution is achieved. The final stage establishes a Rubinstein bargaining game model to combine the Stackelberg equilibrium solutions in the first and second stage. A new equilibrium between the alliance and medical institutions is established. Results: The results show that if the price elasticity of demand increases, the ratio of cost compensation on medical institutions will increase, and the equilibrium price will increase. The equilibrium price is associated with the coefficient of patients' quality preference. The absolute risk aversion coefficient of patients affects government compensation and total social welfare. Conclusion: In a DRGs system, considering the demand elasticity and the quality preference of patients, medical service pricing can prevent an adverse selection problem. In the future, we plan to generalize these models to DRGs pricing systems with the effects of competition of medical institutions. In addition, we suggest considering the differential compensation for general hospitals and community hospitals in a DRGs system, in order to promote the goal of hierarchical diagnosis and treatment.


Duan, J., Lin, Z., & Jiao, F. (2021). A Game Model for Medical Service Pricing Based on the Diagnosis Related Groups. Frontiers in Public Health, 9, Article 737788.

Journal Article Type Article
Acceptance Date Oct 5, 2021
Online Publication Date Nov 30, 2021
Publication Date 2021
Deposit Date Jan 4, 2022
Publicly Available Date Jan 5, 2022
Journal Frontiers in Public Health: Health Economics
Publisher Frontiers Media
Peer Reviewed Peer Reviewed
Volume 9
Article Number 737788
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Published Journal Article (268 Kb)

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Copyright Statement
© 2021 Duan, Lin and Jiao. This is an open-access article distributed under the terms of the Creative Commons Attribution License (CC BY). The use, distribution or reproduction in other forums is permitted, provided the original author(s) and the copyright owner(s) are credited and that the original publication in this journal is cited, in accordance with accepted academic practice. No use, distribution or reproduction is permitted which does not comply with these terms.

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