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Network Incentives in Managed Health Care


  • Ching-To Albert Ma
  • Thomas G. Mcguire


This paper introduces a theory of network incentives in managed health care. Participation in the plan's network confers an economic benefit on providers; in exchange, the plan expects compliance with its protocols. The network sets a target for the number of outpatient visits in an episode of care. A provider failing to satisfy the target may be penalized by the plan's attempt to direct patients to other providers within its network. There is an equilibrium in which every provider in the network uses the target. We test the theory by observing behavior of providers before and after the introduction of managed mental health care in a large, employed population. Managed care consisted of price reductions, utilization review, and creation of a network. Quantity per episode of care fell sharply after initiation of managed care. We identify a network effect in our empirical work. The results indicate that in this case, network incentives account for most of the quantity reduction due to managed care. Copyright (c) 2002 Massachusetts Institute of Technology.

Suggested Citation

  • Ching-To Albert Ma & Thomas G. Mcguire, 2002. "Network Incentives in Managed Health Care," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 11(1), pages 1-35, March.
  • Handle: RePEc:bla:jemstr:v:11:y:2002:i:1:p:1-35

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    References listed on IDEAS

    1. David de Meza & David C. Webb, 1987. "Too Much Investment: A Problem of Asymmetric Information," The Quarterly Journal of Economics, Oxford University Press, vol. 102(2), pages 281-292.
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    Cited by:

    1. Wu, Vivian Y., 2009. "Managed care's price bargaining with hospitals," Journal of Health Economics, Elsevier, vol. 28(2), pages 350-360, March.
    2. Tor Iversen & Ching-to Ma, 2011. "Market conditions and general practitioners’ referrals," International Journal of Health Economics and Management, Springer, vol. 11(4), pages 245-265, December.
    3. Bourgeon, Jean-Marc & Picard, Pierre & Pouyet, Jerome, 2008. "Providers' affiliation, insurance and collusion," Journal of Banking & Finance, Elsevier, vol. 32(1), pages 170-186, January.
    4. Limbrock Frank, 2011. "Pecuniary and Non-Pecuniary Incentives in Prescription Pharmaceuticals: The Case of Statins," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(2), pages 1-30, January.
    5. Rauch, Peter, 2017. "Developing and evaluating strategies to overcome biomass supply risks," Renewable Energy, Elsevier, vol. 103(C), pages 561-569.
    6. Newhouse, Joseph P. & McWilliams, J. Michael & Price, Mary & Huang, Jie & Fireman, Bruce & Hsu, John, 2013. "Do Medicare Advantage plans select enrollees in higher margin clinical categories?," Journal of Health Economics, Elsevier, vol. 32(6), pages 1278-1288.
    7. Richard C. Lindrooth & Anthony T. Lo Sasso & Ithai Z. Lurie, 2006. "The effect of distance to provider on employee response to changes in mental health benefits," Health Economics, John Wiley & Sons, Ltd., vol. 15(10), pages 1133-1141.
    9. Howell, Bronwyn, 2007. "Financial Risk in Primary Health Care Contracting: Implications for Sector Structure, Ownership and Outcomes," Working Paper Series 3964, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    10. Maciej Lis, 2016. "Age or time-to-death – what drives health care expenditures? Panel data evidence from the OECD countries," IBS Working Papers 04/2016, Instytut Badan Strukturalnych.
    11. Colleen L. Barry & M. Susan Ridgely, 2008. "Mental health and substance abuse insurance parity for federal employees: How did health plans respond?," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 27(1), pages 155-170.
    12. Martha A. Starr & R. Forrest McCluer, 2014. "Prices and Quantities in Health Care Antitrust Damages," Working Papers 2014-03, American University, Department of Economics.
    13. Oberender Peter & Zerth Jürgen, 2006. "Soziale Ziele und marktwirtschaftliches Gesundheitswesen - schlußendlich kein Gegensatz! Anmerkungen zum Spannungsfeld von Wettbewerbspolitik und Sozialrecht / Social claims and liberal health care re," ORDO. Jahrbuch für die Ordnung von Wirtschaft und Gesellschaft, De Gruyter, vol. 57(1), pages 261-284, January.
    14. Audrey Boilley, 2013. "Duopoly Competition and Regulation in a Two-Sided Health Care Insurance Market with Product Differentiation," Working Papers 2013-02, CRESE.

    More about this item

    JEL classification:

    • C45 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Neural Networks and Related Topics
    • I10 - Health, Education, and Welfare - - Health - - - General


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