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Information Disclosure and the Equivalence of Prospective Payment and Cost Reimbursement

Author

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  • Ching-to Albert MA

    (Department of Economics, Boston University.)

  • Henry Y. Mak

    (Department of Economics, European University Institute)

Abstract

A health care provider chooses medical service quality and cost-reduction effort. Both choices are noncontractible. An insurer observes both quality and cost effort, and may credibly disclose them to consumers. In prospective payment, the insurer fully discloses care quality, and sets a prospective payment price. In cost reimbursement, the insurer discloses a value index, a weighted average of quality and cost effort, and pays a margin above cost. The first-best quality and cost effort can be implemented by prospective payment and by cost reimbursement.

Suggested Citation

  • Ching-to Albert MA & Henry Y. Mak, 2012. "Information Disclosure and the Equivalence of Prospective Payment and Cost Reimbursement," Boston University - Department of Economics - Working Papers Series WP2012-008, Boston University - Department of Economics.
  • Handle: RePEc:bos:wpaper:wp2012-008
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    Cited by:

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    2. Gu, Yiquan & Rasch, Alexander & Wenzel, Tobias, 2022. "Consumer salience and quality provision in (un)regulated public service markets," Regional Science and Urban Economics, Elsevier, vol. 93(C).
    3. Domenico Lisi & Luigi Siciliani & Odd Rune Straume, 2020. "Hospital competition under pay‐for‐performance: Quality, mortality, and readmissions," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 29(2), pages 289-314, April.
    4. Soroush Saghafian & Wallace J. Hopp, 2020. "Can Public Reporting Cure Healthcare? The Role of Quality Transparency in Improving Patient–Provider Alignment," Operations Research, INFORMS, vol. 68(1), pages 71-92, January.
    5. Castro, Massimo Finocchiaro & Ferrara, Paolo Lorenzo & Guccio, Calogero & Lisi, Domenico, 2019. "Medical malpractice liability and physicians’ behavior: Experimental evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 166(C), pages 646-666.
    6. Mark Braverman & Jing Chen & Sampath Kannan, 2016. "Optimal Provision-After-Wait in Healthcare," Mathematics of Operations Research, INFORMS, vol. 41(1), pages 352-376, February.
    7. Castro, M.F.; & Ferrara, P.; & Guccio, C.; & Lisi, D.;, 2018. "Medical Malpractice Liability and Physicians’ Behavior:Experimental Evidence," Health, Econometrics and Data Group (HEDG) Working Papers 18/11, HEDG, c/o Department of Economics, University of York.
    8. Finocchiaro Castro, Massimo & Ferrara, Paolo Lorenzo & Guccio, Calogero & Lisi, Domenico, 2021. "Optimal mixed payment system and medical liability. A laboratory study," MPRA Paper 110276, University Library of Munich, Germany.

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    Keywords

    prospective payment; cost reimbursement; fee for service; quality; cost reduction;
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