Risk selection and matching in performance-based contracting.
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.
Department of Economics, University of Calgary, AB, Canada. lu@ucalgary.ca
Mingshan
M
Lu
Ching-to Albert
CT
Ma
Lasheng
L
Yuan
D000293:Adolescent; D000328:Adult; D003284:Contract Services / Q000191:economics*; D017050:Episode of Care; D005260:Female; D006801:Humans; D015273:Insurance Selection Bias; D008281:Maine; D008297:Male; D008329:Managed Care Programs / Q000191:economics* / Q000706:statistics & numerical data; D008875:Middle Aged; D017059:Models, Econometric; D010360:Patient Transfer / Q000191:economics / Q000706:statistics & numerical data; D012017:Referral and Consultation / Q000706:statistics & numerical data; D012052:Reimbursement, Incentive; D012720:Severity of Illness Index; D013221:State Health Plans / Q000191:economics* / Q000458:organization & administration; D016320:Substance Abuse Treatment Centers / Q000145:classification / Q000191:economics / Q000706:statistics & numerical data*; D019966:Substance-Related Disorders / Q000145:classification / Q000191:economics / Q000534:rehabilitation*; D014481:United States