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Separating the True Effect from Gaming in Incentive‐Based Contracts in Health Care

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  • Mingshan Lu

Abstract

This paper studies the effect of incentive regulation on health care. In the context of incentive‐based health contracts, which might also introduce an incentive for the providers simply to report better treatment outcomes, evaluation of treatment using the information supplied by the providers (reported output) could be problematic. The systematic error on the output report is called providers' gaming behavior. This paper develops a general method for decomposing the effect of incentive‐based contracts on performance into the true effect, which is the result of clinicians' improved effort induced by the contract, and the gaming effect, which is due to the change in the providers' reporting practice. The method follows the essence of linear structural relation (LISREL) models, and the true treatment output is modeled using a latent variable. Various output measures can be included in the structural evaluation model, but objective measure(s) (output measures not affected by providers' potential gaming) must be constructed based on available information to identify gaming through its correlation with the reported measures. The strengths of this method are that information from more than one output measure can be used, no monitoring system is required, and the construction of a gold‐standard measure is not necessary. This method is applied to evaluate the impact of Maine's performance‐based contracting on its public providers' substance‐abuse services. Evidence of gaming is found in Maine's system, which remains robust in most of the sensitivity analyses. The methodology developed here can be used to evaluate the impact of a broad range of incentive‐based contracts.

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  • Mingshan Lu, 1999. "Separating the True Effect from Gaming in Incentive‐Based Contracts in Health Care," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 8(3), pages 383-431, September.
    • Handle: RePEc:bla:jemstr:v:8:y:1999:i:3:p:383-431
    DOI: 10.1111/j.1430-9134.1999.00383.x
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    References listed on IDEAS

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    1. Marcel Kerkhofs & Maarten Lindeboom, 1995. "Subjective health measures and state dependent reporting errors," Health Economics, John Wiley & Sons, Ltd., vol. 4(3), pages 221-235, May.
    2. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-838, May.
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    4. 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.
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    Cited by:

    1. Lien, Hsien-Ming & Lu, Mingshan & Albert Ma, Ching-To & McGuire, Thomas G., 2010. "Progress and compliance in alcohol abuse treatment," Journal of Health Economics, Elsevier, vol. 29(2), pages 213-225, March.
    2. Karen Eggleston & Randall P. Ellis & Mingshan Lu, 2007. "Prevention and Dynamic Risk Adjustment," Boston University - Department of Economics - Working Papers Series WP2007-023, Boston University - Department of Economics.
    3. Daniel A. Ackerberg & Matilde P. Machado & Michael H. Riordan, 2001. "Measuring the Relative Performance of Providers of a Health Service," NBER Working Papers 8385, National Bureau of Economic Research, Inc.
    4. Duchoslav, Jan & Cecchi, Francesco, 2019. "Do incentives matter when working for god? The impact of performance-based financing on faith-based healthcare in Uganda," World Development, Elsevier, vol. 113(C), pages 309-319.
    5. Chalkley, Martin & Khalil, Fahad, 2005. "Third party purchasing of health services: Patient choice and agency," Journal of Health Economics, Elsevier, vol. 24(6), pages 1132-1153, November.
    6. Matilde P. Machado & Ricardo Mora & Antonio Romero-Medina, 2012. "Can We Infer Hospital Quality From Medical Graduates’ Residency Choices?," Journal of the European Economic Association, European Economic Association, vol. 10(6), pages 1400-1424, December.
    7. Chen, Alice & Lakdawalla, Darius N., 2019. "Healing the poor: The influence of patient socioeconomic status on physician supply responses," Journal of Health Economics, Elsevier, vol. 64(C), pages 43-54.
    8. Karen Eggleston & Randall P. Ellis & Mingshan Lu, 2012. "Risk adjustment and prevention," Canadian Journal of Economics, Canadian Economics Association, vol. 45(4), pages 1586-1607, November.
    9. Machado, Matilde P., 2003. "Substance abuse treatment: what do we know? an economist's perspective," UC3M Working papers. Economics we035621, Universidad Carlos III de Madrid. Departamento de Economía.
    10. Mingshan Lu & Ching‐to Albert Ma & Lasheng Yuan, 2003. "Risk selection and matching in performance‐based contracting," Health Economics, John Wiley & Sons, Ltd., vol. 12(5), pages 339-354, May.
    11. Cavusoglu, Nevin, 2012. "LISREL growth model on direct and indirect effects using cross-country data," Economic Modelling, Elsevier, vol. 29(6), pages 2362-2370.
    12. Machado, Matilde P. & Mora, Ricardo & Romero-Medina, Antonio, 2006. "A methodology to measure hospital quality using physicians' choices over training vacancies," UC3M Working papers. Economics we060201, Universidad Carlos III de Madrid. Departamento de Economía.

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