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Optimal Health Care Contracts under Physician Agency

Author

Listed:
  • Philippe Chone

    (CREST-LEI and CNRS URA 2200)

  • Ching-to Albert Ma

    (Department of Economics, Boston University)

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.

Suggested Citation

  • Philippe Chone & Ching-to Albert Ma, 2007. "Optimal Health Care Contracts under Physician Agency," Boston University - Department of Economics - Working Papers Series WP2007-041, Boston University - Department of Economics, revised Sep 2007.
    • Handle: RePEc:bos:wpaper:wp2007-041
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    as
    1. 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.
    2. Ching-to Albert Ma, 1997. "Cost and Quality Incentives in Health Care: Altruistic Providers," Papers 0084, Boston University - Industry Studies Programme.
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    6. David Bardey & Jean‐Charles Rochet, 2010. "Competition Among Health Plans: A Two‐Sided Market Approach," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 19(2), pages 435-451, June.
    7. Ma, Ching-to Albert, 1994. "Health Care Payment Systems: Cost and Quality Incentives," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 3(1), pages 93-112, Spring.
    8. Jullien, Bruno, 2000. "Participation Constraints in Adverse Selection Models," Journal of Economic Theory, Elsevier, vol. 93(1), pages 1-47, July.
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    10. 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.
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    More about this item

    Keywords

    physician agency; optimal payment; health care quantity; managed care; minimum profit; asymmetric information;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • 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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