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Risk selection and matching in performance-based contracting

โœ Scribed by Mingshan Lu; Ching-to Albert Ma; Lasheng Yuan

Publisher
John Wiley and Sons
Year
2003
Tongue
English
Weight
170 KB
Volume
12
Category
Article
ISSN
1057-9230

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โœฆ Synopsis

Abstract

This paper examines selection and matching incentives of performanceโ€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; patientโ€“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 ยฉ 2002 John Wiley & Sons, Ltd.

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