Health‐Care Payment Systems: Cost and Quality Incentives—Comment

Rajiv Sharma

Journal of Economics & Management Strategy, 1998, vol. 7, issue 1, 127-137

Abstract: This note analyzes the incentives for cost reduction that different payment policies provide to profit‐maximizing health‐care providers. Ching‐to Albert Ma (1994) proposes a reimbursement mechanism that seeks to induce first‐best cost reduction by using a combination of cost reimbursement and prospective payment in a model where higher effort on the part of the health‐care provider reduces treatment costs. This note shows that a mechanism of this type, generally, will not result in first‐best cost reduction. However, such a mechanism is optimal when the payer has efficiency and distributional concerns.

Date: 1998
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