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Optimal Reimbursement and Malpractice Sharing Rules in Health Care Markets

Optimal Reimbursement and Malpractice Sharing Rules in Health Care Markets When health care sponsors such as HMOs or PPOs can use "utilization reviews" in order to indicate to the provider what type of treatment to administer to the patient based upon a diagnosis that is established by the provider, it is possible to implement the "first best" levels of investment in cost control efforts and in aggressiveness of treatment. The implementation of the "first best" requires the utilization of the prospective reimbursement rule accompanied by the removal of all malpractice liabilities from the provider. In contrast, when the type of treatment cannot be enforced by the payer, implementation of the "first best" is not feasible if the payer places a higher weight on the welfare of consumers than that of providers in its objective function. In this case, the reimbursement scheme deviates from the prospective rule, and the provider assumes liability to part of the cost incurred by society as a result of unsuccessful medical outcomes. When the payer can enforce treatment only partially by establishing bounds on the range of acceptable treatments, a minimal acceptable standard will be established and the outcome will be an intermediate case between the above two extremes. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Regulatory Economics Springer Journals

Optimal Reimbursement and Malpractice Sharing Rules in Health Care Markets

Journal of Regulatory Economics , Volume 16 (3) – Oct 15, 2004

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References (37)

Publisher
Springer Journals
Copyright
Copyright © 1999 by Kluwer Academic Publishers
Subject
Economics; Industrial Organization; Public Finance; Microeconomics
ISSN
0922-680X
eISSN
1573-0468
DOI
10.1023/A:1008174905751
Publisher site
See Article on Publisher Site

Abstract

When health care sponsors such as HMOs or PPOs can use "utilization reviews" in order to indicate to the provider what type of treatment to administer to the patient based upon a diagnosis that is established by the provider, it is possible to implement the "first best" levels of investment in cost control efforts and in aggressiveness of treatment. The implementation of the "first best" requires the utilization of the prospective reimbursement rule accompanied by the removal of all malpractice liabilities from the provider. In contrast, when the type of treatment cannot be enforced by the payer, implementation of the "first best" is not feasible if the payer places a higher weight on the welfare of consumers than that of providers in its objective function. In this case, the reimbursement scheme deviates from the prospective rule, and the provider assumes liability to part of the cost incurred by society as a result of unsuccessful medical outcomes. When the payer can enforce treatment only partially by establishing bounds on the range of acceptable treatments, a minimal acceptable standard will be established and the outcome will be an intermediate case between the above two extremes.

Journal

Journal of Regulatory EconomicsSpringer Journals

Published: Oct 15, 2004

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