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Incentives In HMOs

Author

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  • Martin Gaynor

    (Carnegie Mellon Univ & NBER)

  • James B. Rebitzer

    (Case Western Rsrv Univ, NBER, & Levy Econc Inst)

  • Lowell J. Taylor

    (Carnegie Mellon University)

Abstract

We studied the effect of physician incentives in an HMO network. Physician incentives are controversial because they may induce doctors to make treatment decisions that differ from those they would choose in the absence of incentives. We set out a theoretical framework for assessing the degree to which incentive contracts do, in fact, induce physicians to deviate from a standard, guided only by patient interest and professional medical judgment. Our empirical evaluation of the model relies on details of the HMO's incentive contracts and access to the firms' internal expenditure records. We estimate that the HMO's incentive contract provides a typical physician an increase, at the margin, of $.10 in income for each $1.00 reduction in medial utilization expenditures. The average response is a 5-percent reduction in medical expenditures. We also find suggestive evidence that financial incentives linked to commonly used "quality" measures may stimulate an improvement in measured quality.

Suggested Citation

  • Martin Gaynor & James B. Rebitzer & Lowell J. Taylor, 2001. "Incentives In HMOs," Macroeconomics 0111001, EconWPA.
  • Handle: RePEc:wpa:wuwpma:0111001
    Note: Type of Document - Acrobat Adobe PDF; prepared on IBM PC; to print on PostScript; pages: 46; figures: included
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    References listed on IDEAS

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    1. Canice Prendergast, 1999. "The Provision of Incentives in Firms," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 7-63, March.
    2. Christopher Ferrall & Bruce Shearer, 1999. "Incentives and Transactions Costs Within the Firm: Estimating an Agency Model Using Payroll Records," Review of Economic Studies, Oxford University Press, vol. 66(2), pages 309-338.
    3. McGuire, Thomas G., 2000. "Physician agency," Handbook of Health Economics,in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 9, pages 461-536 Elsevier.
    4. Ichniowski, Casey & Shaw, Kathryn & Prennushi, Giovanna, 1997. "The Effects of Human Resource Management Practices on Productivity: A Study of Steel Finishing Lines," American Economic Review, American Economic Association, vol. 87(3), pages 291-313, June.
    5. Martin Gaynor & Paul Gertler, 1995. "Moral Hazard and Risk Spreading in Partnerships," RAND Journal of Economics, The RAND Corporation, vol. 26(4), pages 591-613, Winter.
    6. George Baker & Michael Gibbs & Bengt Holmstrom, 1994. "The Internal Economics of the Firm: Evidence from Personnel Data," The Quarterly Journal of Economics, Oxford University Press, vol. 109(4), pages 881-919.
    7. David M. Cutler & Mark McClellan & Joseph P. Newhouse, 2000. "How Does Managed Care Do It?," RAND Journal of Economics, The RAND Corporation, vol. 31(3), pages 526-548, Autumn.
    8. McClellan, Mark & Cutler, David & Newhous, Joseph P., 2000. "How Does Managed Care Do It?," Scholarly Articles 2643884, Harvard University Department of Economics.
    9. Robert Gibbons, 1996. "Incentives and Careers in Organizations," NBER Working Papers 5705, National Bureau of Economic Research, Inc.
    10. Landers, Renee M & Rebitzer, James B & Taylor, Lowell J, 1996. "Rat Race Redux: Adverse Selection in the Determination of Work Hours in Law Firms," American Economic Review, American Economic Association, vol. 86(3), pages 329-348, June.
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    Citations

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    Cited by:

    1. Casey Ichniowski & Kathryn Shaw, 2004. "Using "Insider Econometrics" to Study Productivity," American Economic Review, American Economic Association, vol. 94(2), pages 217-223, May.
    2. Javitt, Jonathan C. & Rebitzer, James B. & Reisman, Lonny, 2008. "Information technology and medical missteps: Evidence from a randomized trial," Journal of Health Economics, Elsevier, vol. 27(3), pages 585-602, May.
    3. Daniel S. Nagin & James B. Rebitzer & Seth Sanders & Lowell J. Taylor, 2002. "Monitoring, Motivation, and Management: The Determinants of Opportunistic Behavior in a Field Experiment," American Economic Review, American Economic Association, vol. 92(4), pages 850-873, September.
    4. Kaestner, Robert & Guardado, Jose, 2008. "Medicare reimbursement, nurse staffing, and patient outcomes," Journal of Health Economics, Elsevier, vol. 27(2), pages 339-361, March.
    5. David J. Cooper & James B. Rebitzer, "undated". "Physician Incentives In Managed Care Organizations: Medical Practice Norms and the Quality of Care," Economics Public Policy Brief Archive ppb_70, Levy Economics Institute.
    6. Marton, James & Yelowitz, Aaron & Talbert, Jeffery C., 2014. "A tale of two cities? The heterogeneous impact of medicaid managed care," Journal of Health Economics, Elsevier, vol. 36(C), pages 47-68.
    7. Ann Bartel & Brianna Cardiff-Hicks & Kathryn Shaw, 2013. "Compensation Matters: Incentives for Multitasking in a Law Firm," NBER Working Papers 19412, National Bureau of Economic Research, Inc.
    8. Shaw, Kathryn, 2009. "Insider econometrics: A roadmap with stops along the way," Labour Economics, Elsevier, vol. 16(6), pages 607-617, December.
    9. Simon Burgess & Marisa Ratto, 2003. "The Role of Incentives in the Public Sector: Issues and Evidence," The Centre for Market and Public Organisation 03/071, Department of Economics, University of Bristol, UK.
    10. David J. Cooper & James B. Rebitzer, 2002. "Managed Care, Physician Incentives, and Norms of Medical," Microeconomics 0209001, EconWPA.
    11. David J. Cooper & James B. Rebitzer, 2002. "Managed Care, Physician Incentives, and Norms of Medical Practice: Racing to the Bottom or Pulling to the Top?," Economics Working Paper Archive wp_353, Levy Economics Institute.

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    • E - Macroeconomics and Monetary Economics

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