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Risk selection and matching in performance-based contracting

Mingshan Lu (), Ching-to Ma () and Lasheng Yuan
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Lasheng Yuan: Department of Economics, University of Calgary, Canada, Postal: Department of Economics, University of Calgary, Canada

Health Economics, 2003, vol. 12, issue 5, 339-354

Abstract: This paper examines selection and matching incentives of performance-based contracting (PBC) in a model of patient heterogeneity, provider horizontal differentiation and asymmetric information. Treatment effectiveness is affected by the match between a patient's illness severity and a provider's treatment intensity. Before PBC, a provider's revenue is unrelated to treatment effectiveness; therefore, providers supply treatments even if their treatment intensities do not match with the patients' severities. Under PBC, budget allocation is positively related to treatment performance; patient-provider mismatch is reduced because patients are referred more often. Using data from the state of Maine, we show that PBC leads to more referrals and better match between illness severity and treatment intensity. Moreover, we find that PBC has a positive but insignificant effect on dumping. Copyright © 2002 John Wiley & Sons, Ltd.

Date: 2003
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Working Paper: Risk Selection and Matching in Performance-Based Contracting (2000)
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