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Contracts to Promote Optimal Use of Optional Diagnostic Tests in Cancer Treatment
Author(s) -
Ghamat Salar,
Zaric Gregory S.,
Pun Hubert
Publication year - 2018
Publication title -
production and operations management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.279
H-Index - 110
eISSN - 1937-5956
pISSN - 1059-1478
DOI - 10.1111/poms.12780
Subject(s) - test (biology) , health care , radiation oncologist , moral hazard , diagnostic test , payment , actuarial science , medicine , quality (philosophy) , adverse selection , private information retrieval , family medicine , business , incentive , economics , finance , computer science , pediatrics , microeconomics , paleontology , philosophy , computer security , epistemology , biology , economic growth , radiation therapy
In this study, we examine performance‐based payment contracts to promote the optimal use of an optional diagnostic test for newly diagnosed cancer patients. Our work is inspired by three trends: tremendous increases in the cost of new, advanced cancer drugs; development of new diagnostic tests to allow physicians to tailor treatment to patients; and changes in healthcare funding models that reward quality care. We model the interaction between two parties—a healthcare payer and an oncologist, in which the oncologist has private information about patients’ characteristics (adverse selection) and the payer does not know whether the oncologist takes the optimal course of action (moral hazard). We show that, in the presence of information asymmetry, a healthcare payer should never incentivize an oncologist to use a diagnostic test for all patients, even if the diagnostic test is available for free. Moreover, although the oncologist has additional information about a patient's risk, he cannot always benefit from this private information. We also find that social welfare may not increase as a result of a decrease in the oncologist's concerns regarding the health outcome of patients. Finally, we show that it is not always socially optimal to make a diagnostic test compulsory even if such a policy can be implemented for free.