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Sticking points: common‐agency problems and contracting in the US healthcare system

Author

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  • Brigham Frandsen
  • Michael Powell
  • James B. Rebitzer

Abstract

We propose a “common‐agency” model for explaining inefficient contracting in the US healthcare system. Common‐agency problems arise when multiple payers seek to motivate a provider to invest in improved care coordination. We highlight the possibility of “sticking points,” that is, Pareto‐dominated equilibria in which payers coordinate around contracts which give weak incentives to the provider. Sticking points rationalize three hard‐to‐explain features of the US healthcare system: widespread fee‐for‐service arrangements; problematic care coordination; and the historical reliance on single‐specialty practices to deliver care. The model also analyzes the effects of policies promoting more efficient contracting between payers and providers.

Suggested Citation

  • Brigham Frandsen & Michael Powell & James B. Rebitzer, 2019. "Sticking points: common‐agency problems and contracting in the US healthcare system," RAND Journal of Economics, RAND Corporation, vol. 50(2), pages 251-285, June.
    • Handle: RePEc:bla:randje:v:50:y:2019:i:2:p:251-285
    DOI: 10.1111/1756-2171.12269
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    Cited by:

    1. Leila Agha & Keith Marzilli Ericson & Xiaoxi Zhao, 2023. "The Impact of Organizational Boundaries on Health Care Coordination and Utilization," American Economic Journal: Economic Policy, American Economic Association, vol. 15(3), pages 184-214, August.
    2. Seungjin Han & Siyang Xiong, 2022. "Common Agency with Non-Delegation or Imperfect Commitment," Department of Economics Working Papers 2022-05, McMaster University.
    3. Brekke, Kurt R. & Siciliani, Luigi & Straume, Odd Rune, 2024. "Competition, quality and integrated health care," Journal of Health Economics, Elsevier, vol. 95(C).
    4. Luke B. Connelly & Gianluca Fiorentini, 2021. "Structural factors and integrated care interventions: is there a role for economists in the policy debate?," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 22(8), pages 1141-1150, November.
    5. Martin Gaynor & Kate Ho & Robert J. Town, 2015. "The Industrial Organization of Health-Care Markets," Journal of Economic Literature, American Economic Association, vol. 53(2), pages 235-284, June.
    6. Liran Einav & Amy Finkelstein & Yunan Ji & Neale Mahoney, 2020. "Randomized trial shows healthcare payment reform has equal-sized spillover effects on patients not targeted by reform," Proceedings of the National Academy of Sciences, Proceedings of the National Academy of Sciences, vol. 117(32), pages 18939-18947, August.
    7. Michael L. Barnett & Andrew Olenski & Adam Sacarny, 2023. "Common Practice: Spillovers from Medicare on Private Health Care," American Economic Journal: Economic Policy, American Economic Association, vol. 15(3), pages 65-88, August.
    8. Agha, Leila & Frandsen, Brigham & Rebitzer, James B., 2019. "Fragmented division of labor and healthcare costs: Evidence from moves across regions," Journal of Public Economics, Elsevier, vol. 169(C), pages 144-159.

    More about this item

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • I10 - Health, Education, and Welfare - - Health - - - General
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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