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Managed Care and Physician Incentives: The Effects of Competition on the Cost and Quality of Care

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  • Cooper David J.

    () (Case Western Reserve University)

  • Rebitzer James B

    () (Case Western Reserve University)

Abstract

We analyze the effect that competition between HMOs has on the cost and quality of medical services. Our key result is that increasing competition enhances consumer utility while also moderating the impact of managed care on quality and costs. Indeed, we find that heightened competition between HMOs can cause an overall increase in care quality and costs. This result derives from an important, but overlooked, feature of the managed care market place. Plans differentiate themselves by the size and depth of their provider network. The resulting competition to attract physicians exerts a moderating effect on the incentive contracts HMOs write with providers.

Suggested Citation

  • Cooper David J. & Rebitzer James B, 2006. "Managed Care and Physician Incentives: The Effects of Competition on the Cost and Quality of Care," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 5(1), pages 1-32, July.
  • Handle: RePEc:bpj:bejeap:v:contributions.5:y:2006:i:1:n:16
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    Cited by:

    1. Rebitzer, James B. & Taylor, Lowell J., 2011. "Extrinsic Rewards and Intrinsic Motives: Standard and Behavioral Approaches to Agency and Labor Markets," Handbook of Labor Economics, Elsevier.
    2. Randall D. Cebul & James B. Rebitzer & Lowell J. Taylor & Mark E. Votruba, 2008. "Organizational Fragmentation and Care Quality in the U.S. Healthcare System," Journal of Economic Perspectives, American Economic Association, vol. 22(4), pages 93-113, Fall.

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