The interaction between cost‐management and learning for major surgical procedures – lessons from asymmetric information

The theory of the learning curve states that learning effects are of particular importance in industries, where human skills play an important role. Consequently, one would expect to find large learning effects for surgical procedures because the physician's experience is quite important for this type of work. For hospitals, there exists indeed a well‐documented effect that shows a positive relationship between the number of a certain type of surgery being performed and its resulting quality (volume–outcome relationship). Empirical analyses of the impact of learning on the average cost of a procedure, however, have noted a conspicuous absence of learning effects. Using a mechanism design approach, the paper analyzes a model of quality and cost‐management for a hospital, where learning effects are included into the cost function and asymmetric information exists between management and physician. It seeks to answer the question, whether recommendations from a symmetric information scenario with respect to learning carry over to a health care setting, where informational problems tend to be pronounced and severe. If surgery volume interacts with physicians' informational rents, an optimal management reaction to the presence of learning may result in a policy, which is the exact opposite of the one under symmetric information. Copyright © 2002 John Wiley & Sons, Ltd.