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Physician Payment Contracts In The Presence Of Moral Hazard And Adverse Selection: Theory And Application To Ontario

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  • Jasmin Kantarevic
  • Boris Kralj

Abstract

We develop a simple principal-agent model with moral hazard and adverse selection to provide a unified framework for understanding some of the most salient features of the recent physician payment reform in Ontario and its impact on physician behaviour. These features include: (1) physicians can choose a payment contract from a menu that includes an enhanced fee-for-service contract and a blended capitation contract; (2) the capitation rate is higher and the cost-reimbursement rate is lower in the blended capitation contract; (3) physicians sort selectively into the contracts based on their initial productivity; (4) all else equal, physicians in the blended capitation model provide fewer services than physicians in the enhanced fee-for-service model.

Suggested Citation

  • Jasmin Kantarevic & Boris Kralj, 2015. "Physician Payment Contracts In The Presence Of Moral Hazard And Adverse Selection: Theory And Application To Ontario," Working Papers 150001, Canadian Centre for Health Economics.
    • Handle: RePEc:cch:wpaper:150001
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    More about this item

    Keywords

    physician remuneration; moral hazard; adverse selection; Ontario;
    All these keywords.

    JEL classification:

    • I10 - Health, Education, and Welfare - - Health - - - General
    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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