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The optimal payment system for hospitals under adverse selection, moral hazard, and limited liability

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  • François Maréchal

    (Université de Bourgogne Franche-Comté, CRESE)

  • Lionel Thomas

    (Université de Bourgogne Franche-Comté, CRESE)

Abstract

This paper studies the optimal contract offered by a regulator to a partially altruistic hospital under adverse selection, moral hazard, and limited liability. We consider that the hospital privately observes the severity of illness of patients and chooses a hidden quality that influences the probability of some complications or comorbidities (CCs) occurring. We analyze the conditions under which the payment, for a given diagnosis Related Group, should be refined according to the severity of illness and the occurrence of CCs.

Suggested Citation

  • François Maréchal & Lionel Thomas, 2019. "The optimal payment system for hospitals under adverse selection, moral hazard, and limited liability," Working Papers 2019-04, CRESE.
    • Handle: RePEc:crb:wpaper:2019-04
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    References listed on IDEAS

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