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Optimal payment schemes for physicians

Author

Listed:
  • Rosella Levaggi

    (Universitá di Brescia)

  • Lise Rochaix

    (GREQAM-IDEP Centre de la Vieille Charité)

Abstract

. Increasingly, physicians’ payment schemes are being reformed to enhance performance and to ensure an optimal allocation of scarce medical resources. The empirical evidence points towards the use of mixed payment schemes that appear better at achieving efficiency than either lump sum payments (such as capitation) or piece rates (fee for service). Yet, this alleged superiority remains to be established from a theoretical standpoint. The Principal-Agent model developed in this paper offers a contribution in this line, with a primary care physician as agent and a public regulator as principal. Alternative specifications of the principal’s objective function are considered in the model (efficiency versus fairness). Uncertainty is introduced by two random variables that represent the probability for an individual of being ill and his productivity parameter which determines the amount of resources (the physician’s effort in particular) necessary to restore health. The relationship is characterised by information asymmetry since the physician is assumed to observe both variables after the contract has been signed, but before choosing his effort level. Both selection and moral hazard issues are addressed in the model and the results show that, under GP risk neutrality, mixed payment schemes fully correct for both types of information asymmetry.

Suggested Citation

  • Rosella Levaggi & Lise Rochaix, 2003. "Optimal payment schemes for physicians," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 2(2), pages 87-107, August.
    • Handle: RePEc:spr:portec:v:2:y:2003:i:2:d:10.1007_s10258-003-0019-2
    DOI: 10.1007/s10258-003-0019-2
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    Citations

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    Cited by:

    1. Bernard Fortin & Nicolas Jacquemet & Bruce Shearer, 2008. "Policy Analysis in Health-Services Market: Accounting for Quality and Quantity," Annals of Economics and Statistics, GENES, issue 91-92, pages 293-319.
    2. F. Barigozzi & R. Levaggi, 2005. "New Developments in Physician Agency: the Role of Patient Information," Working Papers 550, Dipartimento Scienze Economiche, Universita' di Bologna.
    3. Barigozzi, Francesca & Levaggi, Rosella, 2008. "Emotions in physician agency," Health Policy, Elsevier, vol. 88(1), pages 1-14, October.
    4. Rosella LEVAGGI & Lise ROCHAIX, 2007. "Exit, Choice Or Loyalty: Patient Driven Competition In Primary Care," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 78(4), pages 501-535, December.

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