IDEAS home Printed from https://ideas.repec.org/p/crb/wpaper/2019-04.html
   My bibliography  Save this paper

The optimal payment system for hospitals under adverse selection, moral hazard, and limited liability

Author

Listed:
  • François Maréchal

    (Université de Bourgogne Franche-Comté, CRESE)

  • Lionel Thomas

    (Université de Bourgogne Franche-Comté, CRESE)

Abstract

This paper studies the optimal contract offered by a regulator to a partially altruistic hospital under adverse selection, moral hazard, and limited liability. We consider that the hospital privately observes the severity of illness of patients and chooses a hidden quality that influences the probability of some complications or comorbidities (CCs) occurring. We analyze the conditions under which the payment, for a given diagnosis Related Group, should be refined according to the severity of illness and the occurrence of CCs.

Suggested Citation

  • François Maréchal & Lionel Thomas, 2019. "The optimal payment system for hospitals under adverse selection, moral hazard, and limited liability," Working Papers 2019-04, CRESE.
  • Handle: RePEc:crb:wpaper:2019-04
    as

    Download full text from publisher

    File URL: https://crese.univ-fcomte.fr/uploads/wp/WP-2019-04.pdf
    File Function: First version, 2019
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Elin Johanna Gudrun Hafsteinsdottir & Luigi Siciliani, 2010. "DRG prospective payment systems: refine or not refine?," Health Economics, John Wiley & Sons, Ltd., vol. 19(10), pages 1226-1239, October.
    2. Philippe Choné & Ching-To Albert Ma, 2011. "Optimal Health Care Contract under Physician Agency," Annals of Economics and Statistics, GENES, issue 101-102, pages 229-256.
    3. repec:adr:anecst:y:2011:i:101-102 is not listed on IDEAS
    4. Mougeot, Michel & Naegelen, Florence, 2005. "Hospital price regulation and expenditure cap policy," Journal of Health Economics, Elsevier, vol. 24(1), pages 55-72, January.
    5. Michel Mougeot & Florence Naegelen, 2009. "Moral Hazard, Adverse Selection and Outlier Payment Policy," Post-Print hal-00448965, HAL.
    6. Mark McClellan, 1997. "Hospital Reimbursement Incentives: An Empirical Analysis," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 6(1), pages 91-128, March.
    7. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743.
    8. Andrei Shleifer, 1985. "A Theory of Yardstick Competition," RAND Journal of Economics, The RAND Corporation, vol. 16(3), pages 319-327, Autumn.
    9. Mougeot, Michel & Naegelen, Florence, 2008. "Supply-side risk adjustment and outlier payment policy," Journal of Health Economics, Elsevier, vol. 27(5), pages 1196-1200, September.
    10. 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.
    11. Beitia, Arantza, 2003. "Hospital quality choice and market structure in a regulated duopoly," Journal of Health Economics, Elsevier, vol. 22(6), pages 1011-1036, November.
    12. Allen, Robin & Gertler, Paul J, 1991. "Regulation and the Provision of Quality to Heterogenous Consumers: The Case of Prospective Pricing of Medical Services," Journal of Regulatory Economics, Springer, vol. 3(4), pages 361-375, December.
    13. 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.
    14. Holmstrom, Bengt & Milgrom, Paul, 1991. "Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design," Journal of Law, Economics, and Organization, Oxford University Press, vol. 7(0), pages 24-52, Special I.
    15. Pope, Gregory C., 1989. "Hospital nonprice competition and medicare reimbursement policy," Journal of Health Economics, Elsevier, vol. 8(2), pages 147-172, June.
    16. Eggleston, Karen, 2005. "Multitasking and mixed systems for provider payment," Journal of Health Economics, Elsevier, vol. 24(1), pages 211-223, January.
    17. Ma, Ching-to Albert, 1994. "Health Care Payment Systems: Cost and Quality Incentives," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 3(1), pages 93-112, Spring.
    18. Ollier, Sandrine & Thomas, Lionel, 2013. "Ex post participation constraint in a principal–agent model with adverse selection and moral hazard," Journal of Economic Theory, Elsevier, vol. 148(6), pages 2383-2403.
    19. repec:adr:anecst:y:2011:i:101-102:p:11 is not listed on IDEAS
    20. Ellis, Randall P. & McGuire, Thomas G., 1990. "Optimal payment systems for health services," Journal of Health Economics, Elsevier, vol. 9(4), pages 375-396, December.
    21. Guesnerie, Roger & Laffont, Jean-Jacques, 1984. "A complete solution to a class of principal-agent problems with an application to the control of a self-managed firm," Journal of Public Economics, Elsevier, vol. 25(3), pages 329-369, December.
    22. Mougeot, Michel & Naegelen, Florence, 2008. "Supply-side risk adjustment and outlier payment policy," Journal of Health Economics, Elsevier, vol. 27(5), pages 1196-1200, September.
    23. 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.
    24. Jasmin Kantarevic & Boris Kralj, 2016. "Physician Payment Contracts in the Presence of Moral Hazard and Adverse Selection: The Theory and Its Application in Ontario," Health Economics, John Wiley & Sons, Ltd., vol. 25(10), pages 1326-1340, October.
    25. Barros, Pedro Pita, 2003. "Cream-skimming, incentives for efficiency and payment system," Journal of Health Economics, Elsevier, vol. 22(3), pages 419-443, May.
    26. Gaskin, Darrell J., 1997. "Altruism or moral hazard: The impact of hospital uncompensated care pools," Journal of Health Economics, Elsevier, vol. 16(4), pages 397-416, August.
    27. Jack, William, 2005. "Purchasing health care services from providers with unknown altruism," Journal of Health Economics, Elsevier, vol. 24(1), pages 73-93, January.
    28. Myerson, Roger B., 1982. "Optimal coordination mechanisms in generalized principal-agent problems," Journal of Mathematical Economics, Elsevier, vol. 10(1), pages 67-81, June.
    29. Miltiadis Makris & Luigi Siciliani, 2013. "Optimal Incentive Schemes for Altruistic Providers," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 15(5), pages 675-699, October.
    30. Mark G. Duggan, 2000. "Hospital Ownership and Public Medical Spending," The Quarterly Journal of Economics, Oxford University Press, vol. 115(4), pages 1343-1373.
    31. Ching‐to Albert Ma, 1998. "Health‐Care Payment Systems: Cost and Quality Incentives—Reply," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 7(1), pages 139-142, March.
    32. De Fraja, Gianni, 2000. "Contracts for health care and asymmetric information," Journal of Health Economics, Elsevier, vol. 19(5), pages 663-677, September.
    33. Yaping Wu & Yijuan Chen & Sanxi Li, 2018. "Optimal compensation rule under provider adverse selection and moral hazard," Health Economics, John Wiley & Sons, Ltd., vol. 27(3), pages 509-524, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. 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.
    2. Galina Besstremyannaya & Sergei Golovan, 2019. "Physician’s altruism in incentive contracts: Medicare’s quality race," CINCH Working Paper Series 1903, Universitaet Duisburg-Essen, Competent in Competition and Health.
    3. Elin Johanna Gudrun Hafsteinsdottir & Luigi Siciliani, 2010. "DRG prospective payment systems: refine or not refine?," Health Economics, John Wiley & Sons, Ltd., vol. 19(10), pages 1226-1239, October.
    4. Yaping Wu & Yijuan Chen & Sanxi Li, 2018. "Optimal compensation rule under provider adverse selection and moral hazard," Health Economics, John Wiley & Sons, Ltd., vol. 27(3), pages 509-524, March.
    5. Tsuyoshi Takahara, 2016. "Patient dumping, outlier payments, and optimal healthcare payment policy under asymmetric information," Health Economics Review, Springer, vol. 6(1), pages 1-11, December.
    6. Martin Chalkley, 2012. "Contracts, Information and Incentives in Health Care," Chapters, in: Andrew M. Jones (ed.), The Elgar Companion to Health Economics, Second Edition, chapter 22, Edward Elgar Publishing.
    7. Siciliani, Luigi, 2007. "Paying for Performance with Altruistic or Motivated Providers," CEPR Discussion Papers 6452, C.E.P.R. Discussion Papers.
    8. 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'économie 04.03, Université de Lausanne, Faculté des HEC, Département d’économie.
    9. Oddvar Kaarboe & Luigi Siciliani, 2011. "Multi‐tasking, quality and pay for performance," Health Economics, John Wiley & Sons, Ltd., vol. 20(2), pages 225-238, February.
    10. Michael Kuhn & Luigi Siciliani, 2009. "Performance Indicators for Quality with Costly Falsification," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 18(4), pages 1137-1154, December.
    11. 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, March.
    12. Mathias Kifmann & Luigi Siciliani, 2017. "Average‐Cost Pricing and Dynamic Selection Incentives in the Hospital Sector," Health Economics, John Wiley & Sons, Ltd., vol. 26(12), pages 1566-1582, December.
    13. Kuhn, Michael & Siciliani, Luigi, 2008. "Upcoding and Optimal Auditing in Health Care (or The economics of DRG creep)," CEPR Discussion Papers 6689, C.E.P.R. Discussion Papers.
    14. 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.
    15. repec:dau:papers:123456789/5993 is not listed on IDEAS
    16. 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.
    17. 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.
    18. Kristensen, Søren Rud & Siciliani, Luigi & Sutton, Matt, 2016. "Optimal price-setting in pay for performance schemes in health care," Journal of Economic Behavior & Organization, Elsevier, vol. 123(C), pages 57-77.
    19. Carine Milcent, 2021. "From downcoding to upcoding: DRG based payment in hospitals," International Journal of Health Economics and Management, Springer, vol. 21(1), pages 1-26, March.
    20. Chalkley, Martin & Khalil, Fahad, 2005. "Third party purchasing of health services: Patient choice and agency," Journal of Health Economics, Elsevier, vol. 24(6), pages 1132-1153, November.
    21. Kurt R. Brekke & Luigi Siciliani & Odd Rune Straume, 2018. "Can Competition Reduce Quality?," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 174(3), pages 421-447, September.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:crb:wpaper:2019-04. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/crufcfr.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Yves Oytana (email available below). General contact details of provider: https://edirc.repec.org/data/crufcfr.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.