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Using Subjective Risk Adjusting to Prevent Patient Dumping in the Health Care Industry

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  • David E. M. Sappington
  • Tracy R. Lewis

Abstract

We examine how to procure health care services at minimum cost while preventing suppliers from refusing to care for high-cost patients. A single risk-adjusted prospective payment is optimal only when it is particularly costly for the supplier to discover likely treatment costs. Cost sharing is optimal when these screening costs are somewhat smaller. When screening costs are sufficiently small, screening is optimally accommodated and subjective risk adjusting is implemented. Under subjective risk adjusting, the supplier classifies patients according to his personal assessment of likely treatment costs, and payments are structured accordingly. Optimal procurement policies are contrasted with prevailing industry policies. Copyright (c) 1999 Massachusetts Institute of Technology.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Journal of Economics & Management Strategy.

Volume (Year): 8 (1999)
Issue (Month): 3 (09)
Pages: 351-382

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Handle: RePEc:bla:jemstr:v:8:y:1999:i:3:p:351-382

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Web page: http://www.kellogg.northwestern.edu/research/journals/JEMS/

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Web: http://www.blackwellpublishing.com/journal.asp?ref=1058-6407&site=1

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Cited by:
  1. Barros, Pedro Pita, 2003. "Cream-skimming, incentives for efficiency and payment system," Journal of Health Economics, Elsevier, vol. 22(3), pages 419-443, May.
  2. Schokkaert, Erik & Van de Voorde, Carine, 2004. "Risk selection and the specification of the conventional risk adjustment formula," Journal of Health Economics, Elsevier, vol. 23(6), pages 1237-1259, November.
  3. Makoto Kakinaka & Ryuta Kato, 2013. "Regulated medical fee schedule of the Japanese health care system," International Journal of Health Care Finance and Economics, Springer, vol. 13(3), pages 301-317, December.
  4. Martin Chalkley & Fahad Khalil, 2001. "Third Party Purchasing and Incentives: The "Outcome Movement" and Contracts for Health Services," Dundee Discussion Papers in Economics 125, Economic Studies, University of Dundee.
  5. Pablo Picasso, 2000. "Capitation," Macroeconomics 0004064, EconWPA, revised 23 Aug 2001.
  6. Shen, Yujing & Ellis, Randall P., 2002. "Cost-minimizing risk adjustment," Journal of Health Economics, Elsevier, vol. 21(3), pages 515-530, May.
  7. Fahad Khalil & Martin Chalkley, 2005. "Third Party Purchasing of Health Services: Patient Choice and Agency," Working Papers UWEC-2003-35-P, University of Washington, Department of Economics.
  8. Siciliani, Luigi, 2006. "Selection of treatment under prospective payment systems in the hospital sector," Journal of Health Economics, Elsevier, vol. 25(3), pages 479-499, May.
  9. Dalen, Dag Morten & Moen, Espen R & Riis, Christian, 2009. "Designing Competition in Health Care Markets," HERO On line Working Paper Series 2001:3, Oslo University, Health Economics Research Programme.
  10. Stam, Pieter J.A. & van Vliet, René C.J.A. & van de Ven, Wynand P.M.M., 2010. "A limited-sample benchmark approach to assess and improve the performance of risk equalization models," Journal of Health Economics, Elsevier, vol. 29(3), pages 426-437, May.
  11. Mougeot, Michel & Naegelen, Florence, 2008. "Supply-side risk adjustment and outlier payment policy," Journal of Health Economics, Elsevier, vol. 27(5), pages 1196-1200, September.
  12. Karen Eggleston, 2001. "Multitasking, Competition and Provider Payment," Discussion Papers Series, Department of Economics, Tufts University 0101, Department of Economics, Tufts University.

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