Physician Payment Contracts in the Presence of Moral Hazard and Adverse Selection: The Theory and Its Application in Ontario

Jasmin Kantarevic and Boris Kralj

Health Economics, 2016, vol. 25, issue 10, 1326-1340

Abstract: We develop a stylized principal–agent model with moral hazard and adverse selection to provide a unified framework for understanding some of the most salient features of the recent physician payment reform in Ontario and its impact on physician behavior. These features include the following: (i) physicians can choose a payment contract from a menu that includes an enhanced fee‐for‐service contract and a blended capitation contract; (ii) the capitation rate is higher, and the cost‐reimbursement rate is lower in the blended capitation contract; (iii) physicians sort selectively into the contracts based on their preferences; and (iv) physicians in the blended capitation model provide fewer services than physicians in the enhanced fee‐for‐service model. Copyright © 2015 John Wiley & Sons, Ltd.

Date: 2016
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https://doi.org/10.1002/hec.3220

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Working Paper: Physician Payment Contracts in the Presence of Moral Hazard and Adverse Selection: The Theory and its Application to Ontario (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:wly:hlthec:v:25:y:2016:i:10:p:1326-1340

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