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Incentives in HMO's

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  • Martin Gaynor
  • James B Rebitzer
  • Lowell J Taylor

    ()

Abstract

We study the effect of physician incentives in an HMO network. Physician incentives are controversial because they may induce doctors to make treatment decisions that differ from those they would chose in absence of incentives. We set out a theoretical framework for assessing the degree to which incentive contracts do in fact induce physicians to deviate from a standard guided only by patient interests and professional medical judgement. Our empirical evaluation of the model relies on details of the HMO's incentive contracts and access to the firm’s internal expenditure records. We estimate that the HMO's incentive contract provides a typical physician an increase, at the margin of $0.10 in income for each $1.00 reduction in medical utilisation expenditures. The average response is a 5% reduction in medical expenditures. We also find suggestive evidence that financial incentives linked to commonly used "quality" measure may stimulate an improvement in measured quality.

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Bibliographic Info

Paper provided by Department of Economics, University of Bristol, UK in its series The Centre for Market and Public Organisation with number 03/089.

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Length: 45 pages
Date of creation: Jun 2002
Date of revision:
Handle: RePEc:bri:cmpowp:03/089

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Keywords: analysis of health care markets;

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References

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  1. Robert Gibbons, 1997. "Incentives and Careers in Organizations," NBER Working Papers 5705, National Bureau of Economic Research, Inc.
  2. McClellan, Mark & Cutler, David & Newhous, Joseph P., 2000. "How Does Managed Care Do It?," Scholarly Articles 2643884, Harvard University Department of Economics.
  3. Landers, Renee M & Rebitzer, James B & Taylor, Lowell J, 1996. "Rat Race Redux: Adverse Selection in the Determination of Work Hours in Law Firms," American Economic Review, American Economic Association, vol. 86(3), pages 329-48, June.
  4. Martin Gaynor & Paul Gertler, 1995. "Moral Hazard and Risk Spreading in Partnerships," RAND Journal of Economics, The RAND Corporation, vol. 26(4), pages 591-613, Winter.
  5. Baker, George & Gibbs, Michael & Holmstrom, Bengt, 1994. "The Internal Economics of the Firm: Evidence from Personnel Data," The Quarterly Journal of Economics, MIT Press, vol. 109(4), pages 881-919, November.
  6. Ichniowski, Casey & Shaw, Kathryn & Prennushi, Giovanna, 1997. "The Effects of Human Resource Management Practices on Productivity: A Study of Steel Finishing Lines," American Economic Review, American Economic Association, vol. 87(3), pages 291-313, June.
  7. McGuire, Thomas G., 2000. "Physician agency," Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 9, pages 461-536 Elsevier.
  8. Ferrall, Christopher & Shearer, Bruce, 1999. "Incentives and Transactions Costs within the Firm: Estimating an Agency Model Using Payroll Records," Review of Economic Studies, Wiley Blackwell, vol. 66(2), pages 309-38, April.
  9. David M. Cutler & Mark McClellan & Joseph P. Newhouse, 2000. "How Does Managed Care Do It?," RAND Journal of Economics, The RAND Corporation, vol. 31(3), pages 526-548, Autumn.
  10. Canice Prendergast, 1999. "The Provision of Incentives in Firms," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 7-63, March.
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Citations

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Cited by:
  1. Javitt, Jonathan C. & Rebitzer, James B. & Reisman, Lonny, 2008. "Information technology and medical missteps: Evidence from a randomized trial," Journal of Health Economics, Elsevier, vol. 27(3), pages 585-602, May.
  2. David J. Cooper & James B. Rebitzer, . "Physician Incentives In Managed Care Organizations: Medical Practice Norms and the Quality of Care," Economics Public Policy Brief Archive ppb_70, Levy Economics Institute, The.
  3. Daniel S. Nagin & James B. Rebitzer & Seth Sanders & Lowell J. Taylor, 2002. "Monitoring, Motivation, and Management: The Determinants of Opportunistic Behavior in a Field Experiment," American Economic Review, American Economic Association, vol. 92(4), pages 850-873, September.
  4. David J. Cooper & James B. Rebitzer, 2002. "Managed Care, Physician Incentives, and Norms of Medical," Microeconomics 0209001, EconWPA.
  5. Kaestner, Robert & Guardado, Jose, 2008. "Medicare reimbursement, nurse staffing, and patient outcomes," Journal of Health Economics, Elsevier, vol. 27(2), pages 339-361, March.
  6. David J. Cooper & James B. Rebitzer, 2002. "Managed Care, Physician Incentives, and Norms of Medical Practice: Racing to the Bottom or Pulling to the Top?," Economics Working Paper Archive wp_353, Levy Economics Institute, The.
  7. Casey Ichniowski & Kathryn Shaw, 2004. "Using "Insider Econometrics" to Study Productivity," American Economic Review, American Economic Association, vol. 94(2), pages 217-223, May.
  8. Shaw, Kathryn, 2009. "Insider econometrics: A roadmap with stops along the way," Labour Economics, Elsevier, vol. 16(6), pages 607-617, December.
  9. Simon Burgess & Marisa Ratto, 2003. "The Role of Incentives in the Public Sector: Issues and Evidence," The Centre for Market and Public Organisation 03/071, Department of Economics, University of Bristol, UK.

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