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Providers' affiliation, insurance and collusion

  • Bourgeon, Jean-Marc
  • Picard, Pierre
  • Pouyet, Jerome

This paper provides a theoretical analysis of the benefits for an insurance company to develop its own network of service providers when insurance fraud is characterized by collusion between policyholders and providers. In a static framework without collusion, exclusive affiliation of providers allows insurance companies to recover some market power and to lessen competition on the insurance market. This entails a decrease in the insured's welfare. However, exclusive affiliation of providers may entail a positive effect on customers' surplus when insurers and providers are engaged in a repeated relationship. In particular, while insurers must cooperate to retaliate against a fraudulent provider under non-exclusive affiliation, no cooperation is needed under exclusive affiliation. In that case, an insurer is indeed able to reduce the profit of a malevolent provider by moving to collusion-proof contracts when collusion is detected, and this threat may act as a deterrent for fraudulent activities. This possibility may supplement an inefficient judicial system: it is thus a second-best optimal anti-fraud policy.

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Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 32 (2008)
Issue (Month): 1 (January)
Pages: 170-186

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Handle: RePEc:eee:jbfina:v:32:y:2008:i:1:p:170-186
Contact details of provider: Web page: http://www.elsevier.com/locate/jbf

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  1. Laurence C. Baker & Martin L. Brown, 1999. "Managed Care, Consolidation Among Health Care Providers, and Health Care: Evidence from Mammography," RAND Journal of Economics, The RAND Corporation, vol. 30(2), pages 351-374, Summer.
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  3. Town, Robert & Vistnes, Gregory, 2001. "Hospital competition in HMO networks," Journal of Health Economics, Elsevier, vol. 20(5), pages 733-753, September.
  4. Martin Gaynor & Deborah Haas-Wilson, 1998. "Change, Consolidation, and Competition in Health Care Markets," HEW 9809001, EconWPA.
  5. Esther Gal-Or, 1999. "Mergers and Exclusionary Practices in Health Care Markets," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 8(3), pages 315-350, 09.
  6. Ching-to Albert Ma & Thomas G. McGuire, 1995. "Optimal Health Insurance and Provider Payment," Papers 0059, Boston University - Industry Studies Programme.
  7. Picard, Pierre, 1996. "Auditing claims in the insurance market with fraud: The credibility issue," Journal of Public Economics, Elsevier, vol. 63(1), pages 27-56, December.
  8. Ching-to Albert Ma & Thomas G. McGuire, 1998. "Network Incentives in Managed Health Care," Papers 0094, Boston University - Industry Studies Programme.
  9. Esther Gal-Or, 1997. "Exclusionary Equilibria in Health-Care Markets," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 6(1), pages 5-43, 03.
  10. 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.
  11. Cuellar, Alison Evans & Gertler, Paul J., 2006. "Strategic integration of hospitals and physicians," Journal of Health Economics, Elsevier, vol. 25(1), pages 1-28, January.
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