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Physician Payment Contracts in the Presence of Moral Hazard and Adverse Selection: The Theory and Its Application in Ontario
Author(s) -
Kantarevic Jasmin,
Kralj Boris
Publication year - 2016
Publication title -
health economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.55
H-Index - 109
eISSN - 1099-1050
pISSN - 1057-9230
DOI - 10.1002/hec.3220
Subject(s) - moral hazard , adverse selection , payment , actuarial science , selection (genetic algorithm) , business , economics , finance , incentive , microeconomics , computer science , artificial intelligence
We develop a stylized 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 behavior. These features include the following: (i) physicians can choose a payment contract from a menu that includes an enhanced fee‐for‐service contract and a blended capitation contract; (ii) the capitation rate is higher, and the cost‐reimbursement rate is lower in the blended capitation contract; (iii) physicians sort selectively into the contracts based on their preferences; and (iv) physicians in the blended capitation model provide fewer services than physicians in the enhanced fee‐for‐service model. Copyright © 2015 John Wiley & Sons, Ltd.