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Incentive Contracts for Public Health Care Provision under Adverse Selection and Moral Hazard

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  • Vislie, Jon

    ()
    (Department of Economics)

Abstract

The author will in this paper analyse the issue of payment reforms for a public health care system, where public hospitals offer treatment. Any health care system should provide treatment so as to maximise expected social welfare. The implementation of this outcome, through the way private og public health care providers or hospitals are compensated for the cost of providing services, has been a policy issue in a number of countries. Many payment reforms are now based on a (high-powered) DRG-price system, so as to induce cost consciousness. The hospitals are privately informed about the diseases of each patient and offer treatment with a stochastic outcome, while cost control cannot be verified. Ex post outcome and realised cost of treatment can be verified, with cost depending on treatment intensity, cost-reducing effort and the type of disease. With a disease-contingent transfer, the hospital is able to capture a rent, which has a social cost due to tax distortions and because rent has no direct weight in the welfare function. When type of treatment can be verified, treatment should be less intensive than under complete information, if marginal cost of treatment is disease-dependent. However, rent extraction is accomplished not only by a less aggressive treatment (which has a negative impact on the likelihood for recovery), but also by offering a cost-reimbursement scheme, without any recovery-contingent bonus. When treatment is unverifiable, induced treatment should again be below the first-best level. This solution is implemented through a combination of a recovery-contingent bonus (declining in severity) and cost sharing (with the fraction of cost being reimbursed by the government being increasing in severity).

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File URL: http://www.hero.uio.no/publicat/2001/HERO2001_6.pdf
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Bibliographic Info

Paper provided by Oslo University, Health Economics Research Programme in its series HERO On line Working Paper Series with number 2001:6.

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Length: 50 pages
Date of creation: 30 Jun 2009
Date of revision:
Handle: RePEc:hhs:oslohe:2001_006

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Postal: HERO / Institute of Health Management and Health Economics P.O. Box 1089 Blindern, N-0317 Oslo, Norway
Phone: 2307 5309
Fax: 2307 5310
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Web page: http://www.hero.uio.no/eng.html
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Keywords: Public health care; hospital expenses;

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References

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  1. Ching-to Albert Ma, 1994. "Health Care Payment Systems: Cost and Quality Incentives," Papers, Boston University - Industry Studies Programme 0047, Boston University - Industry Studies Programme.
  2. Gal-Or, Esther, 1999. "Optimal Reimbursement and Malpractice Sharing Rules in Health Care Markets," Journal of Regulatory Economics, Springer, vol. 16(3), pages 237-65, November.
  3. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, December.
  4. Rogerson, William P, 1994. "Choice of Treatment Intensities by a Nonprofit Hospital under Prospective Pricing," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 3(1), pages 7-51, Spring.
  5. Mark McClellan, 1997. "Hospital Reimbursement Incentives: An Empirical Analysis," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 6(1), pages 91-128, 03.
  6. Randall P. Ellis & Thomas G. McGuire, 1993. "Supply-Side and Demand-Side Cost Sharing in Health Care," Journal of Economic Perspectives, American Economic Association, vol. 7(4), pages 135-151, Fall.
  7. Joseph P. Newhouse, 1992. "Medical Care Costs: How Much Welfare Loss?," Journal of Economic Perspectives, American Economic Association, vol. 6(3), pages 3-21, Summer.
  8. Cutler, David M, 1995. "The Incidence of Adverse Medical Outcomes under Prospective Payment," Econometrica, Econometric Society, Econometric Society, vol. 63(1), pages 29-50, January.
  9. Chalkley, Martin & Malcomson, James M., 2000. "Government purchasing of health services," Handbook of Health Economics, Elsevier, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 15, pages 847-890 Elsevier.
  10. Gaynor, Martin, 1994. "Issues in the Industrial Organization of the Market for Physician Services," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 3(1), pages 211-55, Spring.
  11. Ellis, Randall P., 1998. "Creaming, skimping and dumping: provider competition on the intensive and extensive margins1," Journal of Health Economics, Elsevier, vol. 17(5), pages 537-555, October.
  12. Chalkley, Martin & Malcomson, James M, 1996. "Contracts for the National Health Service," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 106(439), pages 1691-1701, November.
  13. Chalkley, M. & Malcomson, J.M., 1996. "Contracts for National Health Service," Discussion Paper Series In Economics And Econometrics 9641, Economics Division, School of Social Sciences, University of Southampton.
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Cited by:
  1. Johanna Vásquez Velásquez & Karoll Gómez Portilla, 2004. "Selección adversa en el régimen contributivo de salud: el caso de la EPS de Susalud," BORRADORES DEL CIE 003489, UNIVERSIDAD DE ANTIOQUIA - CIE.

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