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Risk selection and matching in performance-based contracting

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Author Info
Mingshan Lu (Department of Economics, University of Calgary, Canada)
Ching-to Albert Ma
Lasheng Yuan (Department of Economics, University of Calgary, Canada)

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Abstract

This paper examines selection and matching incentives of performance-based contracting (PBC) in a model of patient heterogeneity, provider horizontal differentiation and asymmetric information. Treatment effectiveness is affected by the match between a patient's illness severity and a provider's treatment intensity. Before PBC, a provider's revenue is unrelated to treatment effectiveness; therefore, providers supply treatments even if their treatment intensities do not match with the patients' severities. Under PBC, budget allocation is positively related to treatment performance; patient-provider mismatch is reduced because patients are referred more often. Using data from the state of Maine, we show that PBC leads to more referrals and better match between illness severity and treatment intensity. Moreover, we find that PBC has a positive but insignificant effect on dumping. Copyright © 2002 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/hec.734
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Publisher Info
Article provided by John Wiley & Sons, Ltd. in its journal Health Economics.

Volume (Year): 12 (2003)
Issue (Month): 5 ()
Pages: 339-354
Download reference. The following formats are available: HTML, plain text, BibTeX, RIS (EndNote), ReDIF
Handle: RePEc:wly:hlthec:v:12:y:2003:i:5:p:339-354

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Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/5749

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Ching-to Albert Ma, 1994. "Health Care Payment Systems: Cost and Quality Incentives," Papers 0047, Boston University - Industry Studies Programme.
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  2. David Dranove, 1987. "Rate-Setting by Diagnosis Related Groups and Hospital Specialization," RAND Journal of Economics, The RAND Corporation, vol. 18(3), pages 417-427, Autumn. [Downloadable!] (restricted)
  3. Ellis, Randall P. & McGuire, Thomas G., 1990. "Optimal payment systems for health services," Journal of Health Economics, Elsevier, vol. 9(4), pages 375-396, December. [Downloadable!] (restricted)
  4. Gaynor, Martin & Pauly, Mark V, 1990. "Compensation and Productive Efficiency of Partnerships: Evidence from Medical Group Practice," Journal of Political Economy, University of Chicago Press, vol. 98(3), pages 544-73, June. [Downloadable!] (restricted)
  5. Newhouse, Joseph P. & Byrne, Daniel J., 1988. "Did Medicare's Prospective Payment System cause length of stay to fall?," Journal of Health Economics, Elsevier, vol. 7(4), pages 413-416, December. [Downloadable!] (restricted)
  6. Holmstrom, Bengt R. & Tirole, Jean, 1989. "The theory of the firm," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 2, pages 61-133 Elsevier. [Downloadable!] (restricted)
  7. Richard G. Frank & Judith R. Lave, 1989. "A Comparison of Hospital Responses to Reimbursement Policies for Medicaid Psychiatric Patients," RAND Journal of Economics, The RAND Corporation, vol. 20(4), pages 588-600, Winter. [Downloadable!] (restricted)
  8. Ma, Ching-to Albert & McGuire, Thomas G, 1997. "Optimal Health Insurance and Provider Payment," American Economic Review, American Economic Association, vol. 87(4), pages 685-704, September. [Downloadable!] (restricted)
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  9. Blomqvist, A., 1997. "Monopolistic Competition and Supply-Side Cost Sharing in the Physician Services Market," UWO Department of Economics Working Papers 9705, University of Western Ontario, Department of Economics.
  10. Mingshan Lu, 1999. "Separating the True Effect from Gaming in Incentive-Based Contracts in Health Care," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 8(3), pages 383-431, 09. [Downloadable!] (restricted)
  11. Joseph P. Newhouse, 1996. "Reimbursing Health Plans and Health Providers: Efficiency in Production versus Selection," Journal of Economic Literature, American Economic Association, vol. 34(3), pages 1236-1263, September. [Downloadable!] (restricted)
  12. Norton, Edward C., 1992. "Incentive regulation of nursing homes," Journal of Health Economics, Elsevier, vol. 11(2), pages 105-128, August. [Downloadable!] (restricted)
  13. Bengt Holmstrom, 1982. "Moral Hazard in Teams," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 324-340, Autumn. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Udo Schneider, 2005. "Asymmetric Information and Outcome-based Compensation in Health Care – Theoretical Implications," HEW 0501006, EconWPA. [Downloadable!]
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