3.2 Underpinning theory

The theoretical underpinning of incentives established by innovative payment models draws on disciplines such as agency theory in microeconomics and behavioural economics (Conrad, 2015). Value-based payment models should yield favourable outcomes by mandating, rewarding or penalising provider behaviours. For example, incentivising providers based on reductions in healthcare spending or enhancements in care quality is likely to motivate them to adjust their treatment and referral decisions accordingly (Conrad, 2015). These models operate on the premise that individual providers seek to maximise a combination of net income (adjusted for the opportunity cost of physician effort) and patient health benefits, both of which are influenced by the quantity and quality of services provided (Conrad, 2015). These insights into behavioural implications have significant implications, including for the recognition of loss aversion’s impact on diminishing the magnitude of penalties, fostering increased involvement of risk-averse providers in two-sided risk-sharing agreements, and strategically framing incentives as potential gains or losses to overcome inherent status quo bias.