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Risk selection and matching in performance‐based contracting

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  • Mingshan Lu
  • Ching‐to Albert Ma
  • Lasheng Yuan
Abstract
This paper examines selection and matching incentives of performance‐based contracting (PBC) in a model of patient heterogeneity, provider horizontal differentiation and asymmetric information. Treatment effectiveness is affected by the match between a patient's illness severity and a provider's treatment intensity. Before PBC, a provider's revenue is unrelated to treatment effectiveness; therefore, providers supply treatments even if their treatment intensities do not match with the patients' severities. Under PBC, budget allocation is positively related to treatment performance; patient–provider mismatch is reduced because patients are referred more often. Using data from the state of Maine, we show that PBC leads to more referrals and better match between illness severity and treatment intensity. Moreover, we find that PBC has a positive but insignificant effect on dumping. Copyright © 2002 John Wiley & Sons, Ltd.

Suggested Citation

  • Mingshan Lu & Ching‐to Albert Ma & Lasheng Yuan, 2003. "Risk selection and matching in performance‐based contracting," Health Economics, John Wiley & Sons, Ltd., vol. 12(5), pages 339-354, May.
    • Handle: RePEc:wly:hlthec:v:12:y:2003:i:5:p:339-354
    DOI: 10.1002/hec.734
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    Cited by:

    1. Chen, Yijuan, 2011. "Why are health care report cards so bad (good)?," Journal of Health Economics, Elsevier, vol. 30(3), pages 575-590, May.
    2. Wilson, Nicholas, 2018. "Altruism in preventive health behavior: At-scale evidence from the HIV/AIDS pandemic," Economics & Human Biology, Elsevier, vol. 30(C), pages 119-129.
    3. Udo Schneider, 2005. "Asymmetric Information and Outcome-based Compensation in Health Care – Theoretical Implications," HEW 0501006, University Library of Munich, Germany.
    4. Diogo Cunha Ferreira & Rui Cunha Marques & Alexandre Morais Nunes, 2021. "Pay for performance in health care: a new best practice tariff-based tool using a log-linear piecewise frontier function and a dual–primal approach for unique solutions," Operational Research, Springer, vol. 21(3), pages 2101-2146, September.
    5. Yaping Wu & David Bardey & Yijuan Chen & Sanxi Li, 2021. "Health care insurance policies When the provider and patient may collude," Health Economics, John Wiley & Sons, Ltd., vol. 30(3), pages 525-543, March.
    6. Xianyi Wang & Xiaofang Wang & Hui He, 2021. "Contracts to Coordinate Healthcare Providers in the Telemedicine Referral System," Sustainability, MDPI, vol. 13(18), pages 1-25, September.
    7. France R. M. Portrait & Onno van der Galiën & Bernard Van den Berg, 2016. "Measuring Healthcare Providers' Performances Within Managed Competition Using Multidimensional Quality and Cost Indicators," Health Economics, John Wiley & Sons, Ltd., vol. 25(4), pages 408-423, April.
    8. Yaping Wu & Yijuan Chen & Sanxi Li, 2018. "Optimal compensation rule under provider adverse selection and moral hazard," Health Economics, John Wiley & Sons, Ltd., vol. 27(3), pages 509-524, March.
    9. Jose A. Guajardo & Morris A. Cohen & Sang-Hyun Kim & Serguei Netessine, 2012. "Impact of Performance-Based Contracting on Product Reliability: An Empirical Analysis," Management Science, INFORMS, vol. 58(5), pages 961-979, May.

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