Incentives in HMOs
AbstractWe 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 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 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 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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Date of creation: Oct 2001
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Other versions of this item:
- Martin Gaynor & James B. Rebitzer & Lowell J. Taylor, 2001. "Incentives In HMOs," Macroeconomics 0111001, EconWPA.
- Martin Gaynor & James B Rebitzer & Lowell J Taylor, 2002. "Incentives in HMO's," The Centre for Market and Public Organisation 03/089, Department of Economics, University of Bristol, UK.
- Martin Gaynor & James Rebitzer & Lowell Taylor, . "Incentives in HMOs," GSIA Working Papers 2003-E21, Carnegie Mellon University, Tepper School of Business.
- Martin Gaynor & James B. Rebitzer & Lowell J. Taylor, 2001. "Incentives In HMOs," Economics Working Paper Archive wp_340, Levy Economics Institute, The.
- I10 - Health, Education, and Welfare - - Health - - - General
- I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2001-10-09 (All new papers)
- NEP-HEA-2001-10-09 (Health Economics)
- NEP-IAS-2001-10-09 (Insurance Economics)
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