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Asymmetric Information and Outcome-based Compensation in Health Care – Theoretical Implications

  • Udo Schneider

    (University of Bayreuth)

The discussion about health care systems focuses on the dynamics of expenditures and on the weak growth of revenues. In this discussion it is widely overseen that medical expenditures and the supply of medical services depend crucially on the compensation of physician services. The paper analyzes the implementation of an outcome-based payment system in the presence of asymmetric information. Two cases are studied in detail. First, the common situation of physician’s moral hazard is analyzed. Second, a double moral hazard model is developed. Here, the patient’s actions influence health outcome and cannot be monitored by the physician. It is shown that the choice of insurance and payment contracts depends on the characteristics of asymmetric information. In addition, lack of knowledge about health status and productivity of health inputs prevent a solution using outcome-based contracts.

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File URL: http://econwpa.repec.org/eps/hew/papers/0501/0501006.pdf
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Paper provided by EconWPA in its series HEW with number 0501006.

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Length: 29 pages
Date of creation: 17 Jan 2005
Date of revision:
Handle: RePEc:wpa:wuwphe:0501006
Note: Type of Document - pdf; pages: 29
Contact details of provider: Web page: http://econwpa.repec.org

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  1. Mingshan Lu & Ching-to Albert Ma & Lasheng Yuan, 2003. "Risk selection and matching in performance-based contracting," Health Economics, John Wiley & Sons, Ltd., vol. 12(5), pages 339-354.
  2. Ma, Ching-to Albert & McGuire, Thomas G, 1997. "Optimal Health Insurance and Provider Payment," American Economic Review, American Economic Association, vol. 87(4), pages 685-704, September.
  3. Chalkley, M. & Malcomson, J.M., 1995. "Contracting for health services with unmonitored quality," Discussion Paper Series In Economics And Econometrics 9510, Economics Division, School of Social Sciences, University of Southampton.
  4. Chalkley, Martin & Malcomson, James M, 1996. "Contracts for the National Health Service," Economic Journal, Royal Economic Society, vol. 106(439), pages 1691-1701, November.
  5. 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.
  6. S. Illeris & G. Akehurst, 2002. "Introduction," The Service Industries Journal, Taylor & Francis Journals, vol. 22(1), pages 1-3, January.
  7. Udo Schneider, 2002. "Beidseitige Informationsasymmetrien in der Arzt-Patient-Beziehung: Implikationen für die GKV," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 71(4), pages 447-458.
  8. De Fraja, Gianni, 2000. "Contracts for health care and asymmetric information," Journal of Health Economics, Elsevier, vol. 19(5), pages 663-677, September.
  9. Rees, Ray, 1985. "The Theory of Principal and Agent: Part 1," Bulletin of Economic Research, Wiley Blackwell, vol. 37(1), pages 3-26, January.
  10. Udo Schneider, 2004. "Asymmetric Information and the Demand for Health Care - the Case of Double Moral Hazard," HEW 0409001, EconWPA.
  11. Selden, Thomas M., 1990. "A model of capitation," Journal of Health Economics, Elsevier, vol. 9(4), pages 397-409, December.
  12. Kenneth L. Leonard & Joshua Graff Zivin, 2005. "Outcome versus service based payments in health care: lessons from African traditional healers," Health Economics, John Wiley & Sons, Ltd., vol. 14(6), pages 575-593.
  13. Chalkley, M. & Malcomson, J.M., 1996. "Contracts for National Health Service," Discussion Paper Series In Economics And Econometrics 9641, Economics Division, School of Social Sciences, University of Southampton.
  14. 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.
  15. Stewart, Jay, 1994. "The Welfare Implications of Moral Hazard and Adverse Selection in Competitive Insurance Markets," Economic Inquiry, Western Economic Association International, vol. 32(2), pages 193-208, April.
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