We studied 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 choose in the 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 interest and professional medical judgment. Our empirical evaluation of the model relies on details of the HMO's incentive contracts and access to the firms' internal expenditure records. We estimate that the HMO's incentive contract provides a typical physician an increase, at the margin, of $.10 in income for each $1.00 reduction in medial utilization expenditures. The average response is a 5-percent reduction in medical expenditures. We also find suggestive evidence that financial incentives linked to commonly used "quality" measures may stimulate an improvement in measured quality.
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Paper
Martin Gaynor & James B. Rebitzer & Lowell J. Taylor, 2001.
"Incentives in HMOs,"
NBER Working Papers
8522, National Bureau of Economic Research, Inc.
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Martin Gaynor & James B. Rebitzer & Lowell J. Taylor, 2001.
"Incentives In HMOs,"
Macroeconomics
0111001, EconWPA.
[Downloadable!]
Martin Gaynor & James Rebitzer & Lowell Taylor, .
"Incentives in HMOs,"
GSIA Working Papers
2003-E21, Carnegie Mellon University, Tepper School of Business.
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