Financial incentives offered by payers to health care providers and patients have been identified as a key mechanism to lower costs while improving quality of care. How to effectively design incentive programs that can align the varying objectives of health care stakeholders, as well as predict programs' performance and stakeholders' decision response is an unresolved research challenge. The objective of this study is to establish a novel approach based on multiscale decision theory (MSDT) that can effectively model and efficiently analyze such incentive programs, and the complex health care system in general. The MSDT model captures the interdependencies of stakeholders, their decision processes, uncertainties, and how incentives impact decisions and outcomes at the payer, hospital, physician, and patient level.

In the first part of this thesis, we study the decision processes of agents pertaining to the investment and utilization of imaging technologies. We analyze the payer-hospital-physician relationships and later extend the model to include radiologist and patient as major stakeholders in the second part of this thesis. We focus on a specific incentive program, the Medicare Shared Savings Program (MSSP) for Accountable Care Organizations (ACOs). The multi-level interactions between agents are mathematically formulated as a sequential non-cooperative game. We derive the equilibrium solutions using the subgame perfect Nash equilibrium (SPNE) concept and the backward induction principle, and determine the conditions under which the MSSP incentive leads to the desired outcomes of cost reduction and quality of care improvements. In the third part of this thesis, we study the multi-level decision making in chronic disease management. We model and analyze patients' and physicians' decision processes as a general-sum stochastic game with perfect information and switching control structure. We incorporate the Health Belief Model (HBM) as the theoretical foundation to capture the behavioral aspect of agents. We analyze how incentives and interdependencies affect patients' engagement in health-promoting activities and physicians' delivery of primary care services. We show that a re-alignment of incentives can improve the effectiveness of chronic disease management.