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Minimum Savings Requirements In Shared Savings Provider Payment

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  • Gregory C. Pope
  • John Kautter

Abstract

Payer (insurer) sharing of savings is a way of motivating providers of medical services to reduce cost growth. A Medicare shared savings program is established for accountable care organizations in the 2010 Patient Protection and Affordable Care Act. However, savings created by providers cannot be distinguished from the normal (random) variation in medical claims costs, setting up a classic principal–agent problem. To lessen the likelihood of paying undeserved bonuses, payers may pay bonuses only if observed savings exceed minimum levels. We study the trade‐off between two types of errors in setting minimum savings requirements: paying bonuses when providers do not create savings and not paying bonuses when providers create savings. Copyright © 2011 John Wiley & Sons, Ltd.

Suggested Citation

  • Gregory C. Pope & John Kautter, 2012. "Minimum Savings Requirements In Shared Savings Provider Payment," Health Economics, John Wiley & Sons, Ltd., vol. 21(11), pages 1336-1347, November.
    • Handle: RePEc:wly:hlthec:v:21:y:2012:i:11:p:1336-1347
    DOI: 10.1002/hec.1793
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    References listed on IDEAS

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    1. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680.
    2. George Baker, 2002. "Distortion and Risk in Optimal Incentive Contracts," Journal of Human Resources, University of Wisconsin Press, vol. 37(4), pages 728-751.
    3. Paul R. Milgrom, 1981. "Good News and Bad News: Representation Theorems and Applications," Bell Journal of Economics, The RAND Corporation, vol. 12(2), pages 380-391, Autumn.
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    Cited by:

    1. Hayen, Arthur & van den Berg, Michael Jack & Struijs, Jeroen Nathan & Westert (Gert), Gerard Pieter, 2021. "Dutch shared savings program targeted at primary care: Reduced expenditures in its first year," Health Policy, Elsevier, vol. 125(4), pages 489-494.
    2. Hui Zhang & Christian Wernz & Anthony D. Slonim, 2016. "Aligning incentives in health care: a multiscale decision theory approach," EURO Journal on Decision Processes, Springer;EURO - The Association of European Operational Research Societies, vol. 4(3), pages 219-244, November.
    3. Hui Zhang & Christian Wernz & Danny R. Hughes, 2018. "Modeling and designing health care payment innovations for medical imaging," Health Care Management Science, Springer, vol. 21(1), pages 37-51, March.
    4. Hayen, A.P. & van den Berg, M.J. & Meijboom, B.R. & Struijs, J.N. & Westert, G.P., 2015. "Incorporating shared savings programs into primary care : From theory to practice," Other publications TiSEM 2e26be96-1dc3-41fe-8dc9-c, Tilburg University, School of Economics and Management.

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