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Information disclosure and the equivalence of prospective payment and cost reimbursement

Ching-to Ma () and Henry Y. Mak

Journal of Economic Behavior & Organization, 2015, vol. 117, issue C, 439-452

Abstract: A health care provider chooses unobservable service-quality and cost-reduction efforts. The efforts produce quality and cost efficiency. An insurer observes quality and cost, and chooses how to disclose this information to consumers. The insurer also decides how to pay the provider. In prospective payment, the insurer fully discloses quality, and sets a prospective payment price. In cost reimbursement, the insurer discloses a value index, a weighted average of quality and cost efficiency, and pays a margin above cost. The first-best quality and cost efforts can be implemented by prospective payment and by cost reimbursement. Cost reimbursement with value index eliminates dumping and cream skimming. Prospective payment with quality index eliminates cream skimming.

Keywords: Information disclosure; Health care payment; Quality; Cost reduction; Dumping; Cream skimming (search for similar items in EconPapers)
Date: 2015
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Related works:
Working Paper: Information Disclosure and the Equivalence of Prospective Payment and Cost Reimbursement (2013) Downloads
Working Paper: Information Disclosure and the Equivalence of Prospective Payment and Cost Reimbursement (2012) Downloads
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