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Cost sharing in health service provision: an empirical assessment of cost savings

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  • Chalkley, Martin
  • Malcomson, James M.

Abstract

Fixed price payments for treatment of patients with a specified diagnosis are widespread in both US Medicare and the British NHS even though there are substantial variations in the cost of treatment. Theory suggests that, when there is asymmetric information about those costs, total payment can be reduced by cost sharing. This paper uses data from Medicare to assess the cost savings that might be feasible in practice from cost sharing. For diagnosis related groups with low cost variation, the calculated cost savings are approximately 7%. For those with high cost variation, the calculated cost savings are more than 60%.
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Suggested Citation

  • Chalkley, Martin & Malcomson, James M., 2002. "Cost sharing in health service provision: an empirical assessment of cost savings," Journal of Public Economics, Elsevier, vol. 84(2), pages 219-249, May.
  • Handle: RePEc:eee:pubeco:v:84:y:2002:i:2:p:219-249
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    1. Mark McClellan, 1997. "Hospital Reimbursement Incentives: An Empirical Analysis," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 6(1), pages 91-128, March.
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    6. 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.
    7. Chalkley, Martin & Malcomson, James M., 2000. "Government purchasing of health services," Handbook of Health Economics,in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 15, pages 847-890 Elsevier.
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    Cited by:

    1. Michel Mougeot & Florence Naegelen, 2009. "Adverse Selection, Moral Hazard, and Outlier Payment Policy," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 76(1), pages 177-195.
    2. Rosella Levaggi & Moretto Michele, 2008. "Investment In Hospital Care Technology Under Different Purchasing Rules: A Real Option Approach," Bulletin of Economic Research, Wiley Blackwell, vol. 60(2), pages 159-181, April.
    3. Martin Chalkley & Colin Tilley, 2006. "Treatment intensity and provider remuneration: dentists in the British National Health Service," Health Economics, John Wiley & Sons, Ltd., vol. 15(9), pages 933-946.
    4. Chu, Leon Yang & Sappington, David E.M., 2009. "Procurement contracts: Theory vs. practice," International Journal of Industrial Organization, Elsevier, vol. 27(1), pages 51-59, January.
    5. James M. Malcomson, 2005. "Supplier Discretion Over Provision: Theory and an Application to Medical Care," RAND Journal of Economics, The RAND Corporation, vol. 36(2), pages 412-429, Summer.
    6. Jack, William, 2005. "Purchasing health care services from providers with unknown altruism," Journal of Health Economics, Elsevier, vol. 24(1), pages 73-93, January.
    7. Chalkley, Martin & McVicar, Duncan, 2008. "Choice of contracts in the British National Health Service: An empirical study," Journal of Health Economics, Elsevier, vol. 27(5), pages 1155-1167, September.
    8. Rosella Levaggi, 2007. "Regulating internal markets for hospital care," Journal of Regulatory Economics, Springer, vol. 32(2), pages 173-193, October.
    9. Miraldo, Marisa & Siciliani, Luigi & Street, Andrew, 2011. "Price adjustment in the hospital sector," Journal of Health Economics, Elsevier, vol. 30(1), pages 112-125, January.
    10. Martin Chalkley, 2012. "Contracts, Information and Incentives in Health Care," Chapters,in: The Elgar Companion to Health Economics, Second Edition, chapter 22 Edward Elgar Publishing.
    11. Michel Mougeot & Florence Naegelen, 2008. "Swiss DRGs: Patient Heterogeneity and Hospital Payments," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 144(III), pages 309-322, September.
    12. Luigi Siciliani, 2007. "Paying for performance with altruistic or motivated providers," Discussion Papers 07/33, Department of Economics, University of York.
    13. Laura Levaggi & Rosella Levaggi, 2010. "Strategic costs and preferences revelation in the allocation of resources for health care," International Journal of Health Economics and Management, Springer, vol. 10(3), pages 239-256, September.
    14. Galizzi, Matteo M. & Miraldo, Marisa, 2011. "The effects of hospitals' governance on optimal contracts: Bargaining vs. contracting," Journal of Health Economics, Elsevier, vol. 30(2), pages 408-424, March.
    15. Paolo Pertile, 2008. "Investment in Health Technologies in a Competitive Model with Real Options," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 10(5), pages 923-952, October.
    16. 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'Econométrie et d'Economie politique (DEEP) 04.03, Université de Lausanne, Faculté des HEC, DEEP.
    17. CANTA, Chiara, 2011. "Efficiency, access and the mixed delivery of health care services," CORE Discussion Papers 2011046, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    18. Jack, William, 2000. "Health insurance reform in four Latin American countries : theory and practice," Policy Research Working Paper Series 2492, The World Bank.
    19. Siciliani, Luigi, 2006. "Selection of treatment under prospective payment systems in the hospital sector," Journal of Health Economics, Elsevier, vol. 25(3), pages 479-499, May.
    20. repec:dau:papers:123456789/5993 is not listed on IDEAS
    21. Kuhn, Michael & Siciliani, Luigi, 2007. "Performance Indicators for Quality with Adverse Selection, Gaming and Inequality Aversion," CEPR Discussion Papers 6261, C.E.P.R. Discussion Papers.
    22. Rosella Levaggi, 2005. "Hospital Health Care: Pricing and Quality Control in a Spatial Model with Asymmetry of Information," International Journal of Health Economics and Management, Springer, vol. 5(4), pages 327-349, December.

    More about this item

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets

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