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Optimal Health Care Contracts under Physician Agency

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Author Info
Philippe Chone () (CREST-LEI and CNRS URA 2200)
Ching-to Albert Ma () (Department of Economics, Boston University)

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Abstract

We examine contracts between insurers and physicians when the treatment is chosen to maximize a combination of physician profit and patient benefit (“physician agency”). The degree of substitution between doctor profit and patient benefit in the physician-patient coalition is the physician’s private information, as is the patient’s intrinsic valuation of treatment quantity. The equilibrium mechanism only depends on the physician-patient coalition parameter. Moreover, the equilibrium mechanism exhibits extensive pooling, with prescribed quantity and physician reimbursement being insensitive to the agency characteristics or patient’s actual benefit. The optimal mechanism is interpreted as managed care where strict approval protocols are placed on treatments.

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Publisher Info
Paper provided by Boston University - Department of Economics in its series Boston University - Department of Economics - Working Papers Series with number WP2007-041.

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Length: 35 pages
Date of creation: Jan 2007
Date of revision: Sep 2007
Handle: RePEc:bos:wpaper:wp2007-041

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Postal: 270 Bay State Road, Boston, MA 02215
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Web page: http://www.bu.edu/econ/
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Related research
Keywords: physician agency; optimal payment; health care quantity; managed care; minimum profit; asymmetric information;

Find related papers by JEL classification:
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
I1 - Health, Education, and Welfare - - Health
I10 - Health, Education, and Welfare - - Health - - - General
L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Keeler, Emmett B. & Carter, Grace & Newhouse, Joseph P., 1998. "A model of the impact of reimbursement schemes on health plan choice," Journal of Health Economics, Elsevier, vol. 17(3), pages 297-320, June. [Downloadable!] (restricted)
  2. Ching-to Albert Ma, 1994. "Health Care Payment Systems: Cost and Quality Incentives," Papers 0047, Boston University - Industry Studies Programme.
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  3. Chalkley, Martin & Malcomson, James M., 1998. "Contracting for health services when patient demand does not reflect quality," Journal of Health Economics, Elsevier, vol. 17(1), pages 1-19, January. [Downloadable!] (restricted)
    Other versions:
  4. Rochaix, Lise, 1989. "Information asymmetry and search in the market for physicians' services," Journal of Health Economics, Elsevier, vol. 8(1), pages 53-84, March. [Downloadable!] (restricted)
  5. James R. Baumgardner, 1991. "The Interaction between Forms of Insurance Contract and Types of Technical Change in Medical Care," RAND Journal of Economics, The RAND Corporation, vol. 22(1), pages 36-53, Spring. [Downloadable!] (restricted)
  6. Ching-to Albert Ma, 1997. "Cost and Quality Incentives in Health Care: Altruistic Providers," Papers 0084, Boston University - Industry Studies Programme.
  7. David Bardey & Jean-Charles Rochet, 2009. "Competition among Health Plans: A Two-Sided Market Approach," DOCUMENTOS DE TRABAJO 005217, UNIVERSIDAD DEL ROSARIO - FACULTAD DE ECONOMÍA. [Downloadable!]
  8. David Dranove & Kathryn Spier, 2003. "A Theory of Utilization Review," Contributions to Economic Analysis & Policy, Berkeley Electronic Press, vol. 2(1), pages 1146-1146. [Downloadable!] (restricted)
  9. Lewis, Tracy R. & Sappington, David E. M., 1989. "Countervailing incentives in agency problems," Journal of Economic Theory, Elsevier, vol. 49(2), pages 294-313, December. [Downloadable!] (restricted)
  10. Ellis, Randall P., 1998. "Creaming, skimping and dumping: provider competition on the intensive and extensive margins1," Journal of Health Economics, Elsevier, vol. 17(5), pages 537-555, October. [Downloadable!] (restricted)
  11. Jullien, Bruno, 2000. "Participation Constraints in Adverse Selection Models," Journal of Economic Theory, Elsevier, vol. 93(1), pages 1-47, July. [Downloadable!] (restricted)
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  12. Mark Dusheiko & Hugh Gravelle & Rowena Jacobs & Peter Smith, 2003. "The Effects of Budgets on Doctors Behaviour: Evidence from a Natural Experiment," The Centre for Market and Public Organisation 03/064, Department of Economics, University of Bristol, UK. [Downloadable!]
    Other versions:
  13. 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. [Downloadable!] (restricted)
  14. Frank, Richard G. & Glazer, Jacob & McGuire, Thomas G., 2000. "Measuring adverse selection in managed health care," Journal of Health Economics, Elsevier, vol. 19(6), pages 829-854, November. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. BARDEY, David & CANTA, Chiara & LOZACHMEUR, Jean-Marie, 2008. "A New Rationale for Cost Reimbursement: Price Regulation with Horizontal and Vertical Differentiation," IDEI Working Papers 532, Institut d'Économie Industrielle (IDEI), Toulouse. [Downloadable!]
  2. Siciliani, Luigi, 2007. "Paying for Performance with Altruistic or Motivated Providers," CEPR Discussion Papers 6452, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
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