Impact of management models on revenue sharing for signaling medical equipment reliability

Yu-Hung Chen, Ling-Chieh Kung, Jiun-Yu Yu, Hsin-Jung Tsai and Yu Jen Wang

Journal of the Operational Research Society, 2022, vol. 73, issue 6, 1379-1392

Abstract: This paper examines the contracting problem between a medical equipment vendor and a hospital in the healthcare industry. Many medical treatments depend heavily on the reliability of newly developed equipment, which typically encompasses private information on the part of the vendor. We built a game-theoretic model to examine the optimal contract a vendor can offer to prevent hospitals from underpaying for a reliable machine. First, the contract format including revenue sharing may serve as a signaling device of reliability. Second, the management model of a hospital has a strong impact on contract design. In particular, the vendor is better able to signal its reliability through revenue sharing to a non-profit hospital than to a for-profit hospital. Lastly, revenue sharing becomes more attractive to vendors as hospitals are more concerned about social welfare.

Date: 2022
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DOI: 10.1080/01605682.2021.1907240

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