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Payment contracts in a preventive health care system: A perspective from Operations Management

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  • Yaesoubi, Reza
  • Roberts, Stephen D.
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    Abstract

    We consider a health care system consisting of two noncooperative parties: a health purchaser (payer) and a health provider, where the interaction between the two parties is governed by a payment contract. We determine the contracts that coordinate the health purchaser–health provider relationship; i.e. the contracts that maximize the population's welfare while allowing each entity to optimize its own objective function. We show that under certain conditions (1) when the number of customers for a preventive medical intervention is verifiable, there exists a gate-keeping contract and a set of concave piecewise linear contracts that coordinate the system, and (2) when the number of customers is not verifiable, there exists a contract of bounded linear form and a set of incentive-feasible concave piecewise linear contracts that coordinate the system.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Health Economics.

    Volume (Year): 30 (2011)
    Issue (Month): 6 ()
    Pages: 1188-1196

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    Handle: RePEc:eee:jhecon:v:30:y:2011:i:6:p:1188-1196

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    Web page: http://www.elsevier.com/locate/inca/505560

    Related research

    Keywords: Health care payment system; Coordinating contracts; Welfare; Mechanism design; Principal–agent model; Preventive care;

    References

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    1. BOADWAY, Robin & MARCHAND, Maurice & SATO, Motohiro, 2003. "An optimal contract approach to hospital financing," CORE Discussion Papers 2003021, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    2. Chalkley, M. & Malcomson, J.M., 1995. "Contracting for health services when patient demand does not reflect quality," Discussion Paper Series In Economics And Econometrics 9514, Economics Division, School of Social Sciences, University of Southampton.
    3. Ching-to Albert Ma, 1994. "Health Care Payment Systems: Cost and Quality Incentives," Papers 0047, Boston University - Industry Studies Programme.
    4. Gérard P. Cachon & Martin A. Lariviere, 2005. "Supply Chain Coordination with Revenue-Sharing Contracts: Strengths and Limitations," Management Science, INFORMS, vol. 51(1), pages 30-44, January.
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    6. Jack, William, 2005. "Purchasing health care services from providers with unknown altruism," Journal of Health Economics, Elsevier, vol. 24(1), pages 73-93, January.
    7. Marinoso, Begona Garcia & Jelovac, Izabela, 2003. "GPs' payment contracts and their referral practice," Journal of Health Economics, Elsevier, vol. 22(4), pages 617-635, July.
    8. Barry Alan Pasternack, 1985. "Optimal Pricing and Return Policies for Perishable Commodities," Marketing Science, INFORMS, vol. 4(2), pages 166-176.
    9. Ching-to Albert Ma & Thomas G. McGuire, 1995. "Optimal Health Insurance and Provider Payment," Papers 0059, Boston University - Industry Studies Programme.
    10. Z. Kevin Weng, 1995. "Channel Coordination and Quantity Discounts," Management Science, INFORMS, vol. 41(9), pages 1509-1522, September.
    11. Prashant C. Fuloria & Stefanos A. Zenios, 2001. "Outcomes-Adjusted Reimbursement in a Health-Care Delivery System," Management Science, INFORMS, vol. 47(6), pages 735-751, June.
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