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Health‐Care Payment Systems: Cost and Quality Incentives—Comment

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  • Rajiv L. Sharma

Abstract

This note analyzes the incentives for cost reduction that different payment policies provide to profit‐maximizing health‐care providers. Ching‐to Albert Ma (1994) proposes a reimbursement mechanism that seeks to induce first‐best cost reduction by using a combination of cost reimbursement and prospective payment in a model where higher effort on the part of the health‐care provider reduces treatment costs. This note shows that a mechanism of this type, generally, will not result in first‐best cost reduction. However, such a mechanism is optimal when the payer has efficiency and distributional concerns.

Suggested Citation

  • Rajiv L. Sharma, 1998. "Health‐Care Payment Systems: Cost and Quality Incentives—Comment," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 7(1), pages 127-137, March.
    • Handle: RePEc:bla:jemstr:v:7:y:1998:i:1:p:127-137
    DOI: 10.1111/j.1430-9134.1998.00127.x
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    References listed on IDEAS

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    1. 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.
    2. Ellis, Randall P. & McGuire, Thomas G., 1986. "Provider behavior under prospective reimbursement : Cost sharing and supply," Journal of Health Economics, Elsevier, vol. 5(2), pages 129-151, June.
    3. Joseph P. Newhouse, 1996. "Reimbursing Health Plans and Health Providers: Efficiency in Production versus Selection," Journal of Economic Literature, American Economic Association, vol. 34(3), pages 1236-1263, September.
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    Cited by:

    1. Amir Shmueli & Jacob Glazer, 1999. "Addressing the inequity of capitation by variable soft contracts," Health Economics, John Wiley & Sons, Ltd., vol. 8(4), pages 335-343, June.
    2. François MARECHAL & Michel MOUGEOT, 2004. "Risk sharing and moral hazard under prospective payment to hospitals: how to reimburse services for outlier patients," Cahiers de Recherches Economiques du Département d'économie 04.03, Université de Lausanne, Faculté des HEC, Département d’économie.
    3. Ching‐to Albert Ma, 1998. "Health‐Care Payment Systems: Cost and Quality Incentives—Reply," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 7(1), pages 139-142, March.
    4. David E. M. Sappington & Tracy R. Lewis, 1999. "Using Subjective Risk Adjusting to Prevent Patient Dumping in the Health Care Industry," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 8(3), pages 351-382, September.

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