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Multitasking, quality and pay for performance

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  • Oddvar Martin Kaarboe
  • Luigi Siciliani

Abstract

We present a model of optimal contracting between a purchaser and a provider of health services when quality has two dimensions. We assume that one dimension of quality is contractible (dimension 1) and one dimension is not contractible (dimension 2). We show that the optimal incentive scheme for the contractible dimension depends critically on the extent to which quality 1 increases or decreases the marginal cost and marginal bene?t of quality 2 (i.e. substitutability or complementarity). If the two quality dimensions are substitutes, three possible solutions arise: a) the optimal incentive scheme is high powered: the incentive is equal to the marginal bene?t of quality dimension 1 and the optimal quality in dimension 2 is zero; b) the optimal incentive scheme is low powered: both quality dimensions are positive; the incentive is below the marginal bene?t of quality dimension 1; c) it is not optimal to introduce pay for performance as the gain of welfare from an increase in quality dimension 1 is lower than the loss of welfare from an increase in quality dimension 2. If the two quality dimensions are complements the incentive scheme is always high powered: the incentive is above the marginal bene?t of dimension 1 and both quality dimensions are positive.

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Bibliographic Info

Paper provided by Department of Economics, University of York in its series Discussion Papers with number 08/06.

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Date of creation: Apr 2008
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Handle: RePEc:yor:yorken:08/06

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Postal: Department of Economics and Related Studies, University of York, York, YO10 5DD, United Kingdom
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Web page: http://www.york.ac.uk/economics/
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Keywords: quality; altruism; incentives;

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References

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  1. Chalkley, M. & Malcomson, J.M., 1995. "Contracting for health services with unmonitored quality," Discussion Paper Series In Economics And Econometrics 9510, Economics Division, School of Social Sciences, University of Southampton.
  2. Ellis, Randall P. & McGuire, Thomas G., 1990. "Optimal payment systems for health services," Journal of Health Economics, Elsevier, vol. 9(4), pages 375-396, December.
  3. 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.
  4. BOADWAY, Robin & MARCHAND, Maurice & SATO, Motohiro, 2003. "An optimal contract approach to hospital financing," CORE Discussion Papers 2003021, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  5. Chalkley, Martin & Malcomson, James M., 1998. "Contracting for health services when patient demand does not reflect quality," Journal of Health Economics, Elsevier, vol. 17(1), pages 1-19, January.
  6. Pope, Gregory C., 1989. "Hospital nonprice competition and medicare reimbursement policy," Journal of Health Economics, Elsevier, vol. 8(2), pages 147-172, June.
  7. Baker, George P, 1992. "Incentive Contracts and Performance Measurement," Journal of Political Economy, University of Chicago Press, vol. 100(3), pages 598-614, June.
  8. Mougeot, Michel & Naegelen, Florence, 2005. "Hospital price regulation and expenditure cap policy," Journal of Health Economics, Elsevier, vol. 24(1), pages 55-72, January.
  9. Eggleston, Karen, 2005. "Multitasking and mixed systems for provider payment," Journal of Health Economics, Elsevier, vol. 24(1), pages 211-223, January.
  10. Ma, Ching-to Albert, 1994. "Health Care Payment Systems: Cost and Quality Incentives," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 3(1), pages 93-112, Spring.
  11. Jack, William, 2005. "Purchasing health care services from providers with unknown altruism," Journal of Health Economics, Elsevier, vol. 24(1), pages 73-93, January.
  12. Hugh Gravelle & Matt Sutton & Ada Ma, 2008. "Doctor Behaviour Under a Pay for Performance Contract: Further Evidence from the Quality and Outcomes Framework," Working Papers 034cherp, Centre for Health Economics, University of York.
  13. Holmstrom, Bengt & Milgrom, Paul, 1991. "Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design," Journal of Law, Economics and Organization, Oxford University Press, vol. 7(0), pages 24-52, Special I.
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Citations

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Cited by:
  1. Kurt R. Brekke & Luigi Siciliani & Odd Rune Straume, 2014. "Hospital Mergers with Regulated Prices," NIPE Working Papers 10/2014, NIPE - Universidade do Minho.
  2. Janueleviciute, Jurgita & Askildsen, Jan Erik & Kaarbøe, Oddvar & Siciliani, Luigi & Sutton, Matt, 2013. "How Do Hospitals Respond To Price Changes?Evidence From Norway," Working Papers in Economics 15/12, University of Bergen, Department of Economics.
  3. Brekke, Kurt R. & Siciliani, Luigi & Straume, Odd Rune, 2011. "Quality competition with profit constraints: Do non-profit firms provide higher quality than for-profit firms?," Discussion Paper Series in Economics 2/2011, Department of Economics, Norwegian School of Economics.
  4. Rud Kristensen, Søren & Siciliani, Luigi & Sutton, Matt, 2014. "Optimal Price-Setting in Pay for Performance Schemes in Health Care," CEPR Discussion Papers 9915, C.E.P.R. Discussion Papers.
  5. Jeannette Brosig-Koch & Heike Hennig-Schmidt & Nadja Kairies & Daniel Wiesen, 2013. "How Effective are Pay-for-Performance Incentives for Physicians? – A Laboratory Experiment," Ruhr Economic Papers 0413, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  6. Iezzi, Elisa & Lippi Bruni, Matteo & Ugolini, Cristina, 2014. "The role of GP's compensation schemes in diabetes care: Evidence from panel data," Journal of Health Economics, Elsevier, vol. 34(C), pages 104-120.
  7. Jasmin Kantarevic & Boris Kralj, 2013. "Link Between Pay For Performance Incentives And Physician Payment Mechanisms: Evidence From The Diabetes Management Incentive In Ontario," Health Economics, John Wiley & Sons, Ltd., vol. 22(12), pages 1417-1439, December.
  8. Siciliani, Luigi & Rune Straume, Odd & Cellini, Roberto, 2013. "Quality competition with motivated providers and sluggish demand," Journal of Economic Dynamics and Control, Elsevier, vol. 37(10), pages 2041-2061.
  9. Ching-to Albert MA & Henry Y. Mak, 2012. "Information Disclosure and the Equivalence of Prospective Payment and Cost Reimbursement," Boston University - Department of Economics - Working Papers Series WP2012-008, Boston University - Department of Economics.
  10. Brekke, Kurt R. & Siciliani, Luigi & Straume, Odd Rune, 2014. "Hospital Mergers with Regulated Prices," Discussion Paper Series in Economics 21/2014, Department of Economics, Norwegian School of Economics.

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