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A Theory of Utilization Review

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  • Dranove David

    ()
    (Kellogg School of Management, Northwestern University)

  • Spier Kathryn E.

    ()
    (Kellogg School of Management, Northwestern University and NBER)

Abstract

Through utilization review (UR), managed care organizations (MCOs) monitor and alter physician treatment decisions. We show that the value of UR depends on physician incentives. Not surprisingly, when physicians have incentives to significantly overtreat patients, UR can improve social welfare by eliminating unnecessary utilization. More surprisingly, UR can also improve welfare when physicians have incentives to significantly undertreat patients. In this case, UR filters out the least valuable cases, encouraging physicians to recommend more treatments. We also show that the effectiveness of UR depends on MCO precommitment to a treatment approval threshold. Ex ante optimal precommitment can make it appear that the MCO is inappropriately withholding care ex post.

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Bibliographic Info

Article provided by De Gruyter in its journal The B.E. Journal of Economic Analysis & Policy.

Volume (Year): 2 (2003)
Issue (Month): 1 (August)
Pages: 1-21

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Handle: RePEc:bpj:bejeap:v:contributions.2:y:2003:i:1:n:9

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Cited by:
  1. Kuhn, Michael & Siciliani, Luigi, 2013. "Manipulation and auditing of public sector contracts," European Journal of Political Economy, Elsevier, vol. 32(C), pages 251-267.
  2. Francisco J. Gomes & Laurence J. Kotlikoff & Luis M. Viceira, 2012. "The Excess Burden of Government Indecision," Tax Policy and the Economy, University of Chicago Press, vol. 26(1), pages 125 - 164.
  3. Philippe Chone & Ching-to Albert Ma, 2007. "Optimal Health Care Contracts under Physician Agency," Boston University - Department of Economics - Working Papers Series WP2007-041, Boston University - Department of Economics, revised Sep 2007.

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