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Market Power, Contracts and Outcomes: The Case of Patients with Long-Term Diseases in the Colombian Health Care System

Author

Listed:
  • Juan Esteban Carranza
  • Álvaro J. Riascos
  • Natalia Serna

Abstract

The Colombian health system has two main types of agents: the insurers and the service providers, which interact with each other through bilateral contracts. The types of contracts that these agents can write is restricted to a limited menu established by the regulator. The two most prevalent types of contract in the data are, by far, capitation contracts and fee-for-service contracts, which distribute risk and incentives differentially across both parties. We use a detailed data set of services and payments of all insurers and service providers at the individual user level to study the determinants of contract choice and their effect on health outcomes of a large sample of patients with chronic diseases. We focus on patients who are identical at the type of diagnosis, except for the contract type under which they are served, and show that capitation contracts are strongly correlated with lower rates of return to emergency care and lower rates of reincidence, compared with fee-for-service contracts. Both types of contracts lead to statistically different treatment paths. These results are consistent with contract theory and the economics of asymmetric information. Moreover, we show that the contract type depends on the market power of insurers and providers as predicted by a bargaining model. More generally, the results highlight the relevance of vertical contracts for the performance of health systems.

Suggested Citation

  • Juan Esteban Carranza & Álvaro J. Riascos & Natalia Serna, 2017. "Market Power, Contracts and Outcomes: The Case of Patients with Long-Term Diseases in the Colombian Health Care System," Documentos de Trabajo Quantil 015283, Quantil.
  • Handle: RePEc:col:000508:015283
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    References listed on IDEAS

    as
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    6. Ã lvaro Riascos & Eduardo Alfonso & Mauricio Romero, 2014. "The Performance of Risk Adjustment Models in Colombian Competitive Health Insurance Market," Documentos CEDE 012062, Universidad de los Andes - CEDE.
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    More about this item

    Keywords

    Vertical contracts; health insurance; asymmetric information;
    All these keywords.

    JEL classification:

    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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