Risk Selection and Matching in Performance-Based Contracting
AbstractThis 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 Â© 2002 John Wiley & Sons, Ltd.
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Bibliographic InfoPaper provided by Boston University - Industry Studies Programme in its series Papers with number 0101.
Date of creation: May 2000
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Postal: Boston University, Industry Studies Program; Department of Economics, 270 Bay Road, Boston, Massachusetts 02215.
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Other versions of this item:
- Mingshan Lu & Ching-to Albert Ma & Lasheng Yuan, 2003. "Risk selection and matching in performance-based contracting," Health Economics, John Wiley & Sons, Ltd., vol. 12(5), pages 339-354.
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