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Information Disclosure and the Equivalence of Prospective Payment and Cost Reimbursement

  • Ching-to Albert MA

    ()

    (Department of Economics, Boston University.)

  • Henry Y. Mak

    ()

    (Department of Economics, European University Institute)

A health care provider chooses medical service quality and cost-reduction effort. Both choices are noncontractible. An insurer observes both quality and cost effort, and may credibly disclose them to consumers. In prospective payment, the insurer fully discloses care quality, and sets a prospective payment price. In cost reimbursement, the insurer discloses a value index, a weighted average of quality and cost effort, and pays a margin above cost. The first-best quality and cost effort can be implemented by prospective payment and by cost reimbursement.

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File URL: http://people.bu.edu/ma/payment-info.pdf
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Paper provided by Boston University - Department of Economics in its series Boston University - Department of Economics - Working Papers Series with number WP2012-008.

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Length: 26 pages
Date of creation: Jan 2012
Handle: RePEc:bos:wpaper:wp2012-008
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