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Information Disclosure and the Equivalence of Prospective Payment and Cost Reimbursement

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Author Info

  • 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.

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File URL: http://people.bu.edu/ma/payment-info.pdf
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Bibliographic Info

Paper provided by Boston University - Department of Economics in its series Boston University - Department of Economics - Working Papers Series with number WP2012-008.

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Length: 26 pages
Date of creation: Jan 2012
Date of revision:
Handle: RePEc:bos:wpaper:wp2012-008

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Web page: http://www.bu.edu/econ/
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Related research

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

This paper has been announced in the following NEP Reports:

References

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  1. Frank, Richard G. & Glazer, Jacob & McGuire, Thomas G., 2000. "Measuring adverse selection in managed health care," Journal of Health Economics, Elsevier, vol. 19(6), pages 829-854, November.
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  4. Oddvar Martin Kaarboe & Luigi Siciliani, 2008. "Multitasking, quality and pay for performance," Discussion Papers 08/06, Department of Economics, University of York.
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  6. 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.
  7. Edward E. Schlee, 1996. "The Value of Information About Product Quality," RAND Journal of Economics, The RAND Corporation, vol. 27(4), pages 803-815, Winter.
  8. Beaulieu, Nancy Dean, 2002. "Quality information and consumer health plan choices," Journal of Health Economics, Elsevier, vol. 21(1), pages 43-63, January.
  9. Glazer, Jacob & McGuire, Thomas G., 2006. "Optimal quality reporting in markets for health plans," Journal of Health Economics, Elsevier, vol. 25(2), pages 295-310, March.
  10. Eggleston, Karen, 2005. "Multitasking and mixed systems for provider payment," Journal of Health Economics, Elsevier, vol. 24(1), pages 211-223, January.
  11. Mougeot, Michel & Naegelen, Florence, 2005. "Hospital price regulation and expenditure cap policy," Journal of Health Economics, Elsevier, vol. 24(1), pages 55-72, January.
  12. Steven Matthews & Andrew Postlewaite, 1985. "Quality Testing and Disclosure," RAND Journal of Economics, The RAND Corporation, vol. 16(3), pages 328-340, Autumn.
  13. Scanlon, Dennis P. & Chernew, Michael & McLaughlin, Catherine & Solon, Gary, 2002. "The impact of health plan report cards on managed care enrollment," Journal of Health Economics, Elsevier, vol. 21(1), pages 19-41, January.
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