“Contracting Telemedicine: A game-theoretic consideration for NHS Advice & Guidance”
by Feryal Erhun
Cambridge Judge Business School
Place: MA-330
Abstract
The UK’s National Health Service (NHS) relies on general practitioners (GPs) as the first point of contact for patients for initial assessment and treatment. However, this gatekeeping in the referral process may be susceptible to diagnostic and referral errors, causing both over- and under-referrals. These inefficiencies, compounded by long outpatient waiting lists, strain traditional care models. To address such inefficiencies, the NHS introduced Advice & Guidance (A&G), a telemedicine service allowing GPs to consult hospital specialists electronically before making referral decisions. This optional pre-referral step aims to improve referral appropriateness and reduce unnecessary hospital visits. We investigate optimal incentive mechanisms to maximize the effectiveness of A&G in addressing referral inefficiencies. We develop a game-theoretic model to analyze the deployment of the A&G service under different contractual schemes involving three key stakeholders: the payer (service purchaser), the hospital (service provider), and the GPs (service users). Our analysis reveals the limitations of existing approaches, such as a hospital’s voluntary participation, fee-for-service, and two-part tariffs in achieving system-wide efficiency. To overcome these shortcomings, we propose a novel COst-sharing PErformance-based (COPE) contract that aligns incentives between the payer and the hospital to reach socially optimal outcomes. We extend this contract to a dynamic, multi-period setting by incorporating GP learning, and propose Dynamic COPE contracts to support sustained coordination over time.
Our findings emphasize the importance of contract design in realizing the A&G service’s full potential for improving referral efficiency. The COPE contract offers a flexible and effective approach to incentivize hospitals to use A&G while achieving socially optimal outcomes both in the short and long term. Given the NHS’s current focus on A&G, our results provide timely guidance for designing effective payment mechanisms for this service. We show that performance-based contracts can be adapted to stakeholder preferences and specialty-specific demands, ensuring the system remains responsive as GP diagnostic capabilities evolve. Our numerical results highlight that, without proper incentives, hospitals may opt out of providing A&G. The COPE contract proves essential for securing hospital engagement, especially when GP referral error rates are low. For moderate GP referral error rates, simpler non-coordinating contracts can still promote hospital participation and significantly reduce referral errors, though they fall short of full incentive alignment and thus leave some potential value unrealized.
Bio
Feryal Erhun is Professor of Operations and Technology Management at Cambridge Judge Business School. She co-directs the Centre for Health Leadership & Enterprise (CCHLE) and leads the Wo+Men’s Leadership Centre.
Her research is dedicated to generating impactful insights through practice-based research, focusing on strategic interactions in supply chains, responsible operations, and healthcare delivery. She actively collaborates with major industry and academic partners, including Intel, Cisco, Stanford Medicine, and NHS England.
Feryal serves on the editorial board of Manufacturing & Service Operations Management. She has served as a board member of the Production and Operations Management Society and has served as the President-elect (2020-2021) and the President (2021-2022) of the Manufacturing and Service Operations Management Society. She was previously a faculty member in the Management Science and Engineering Department of Stanford University from 2002 until 2013. She holds bachelor’s and master’s degrees from Bilkent University and a PhD in industrial administration from the Carnegie Mellon University Tepper School of Business.
