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

Jasmin Kantarevic and Boris Kralj ()
Additional contact information
Boris Kralj: Ontario Medical Assocation

No 9142, IZA Discussion Papers from Institute of Labor Economics (IZA)

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: (1) physicians can choose a payment contract from a menu that includes an enhanced fee-for-service contract and a blended capitation contract; (2) the capitation rate is higher and the cost-reimbursement rate is lower in the blended capitation contract; (3) physicians sort selectively into the contracts based on their preferences; and (4) physicians in the blended capitation model provide fewer services than physicians in the enhanced fee-for-service model.

Keywords: adverse selection; moral hazard; physician remuneration; Ontario (search for similar items in EconPapers)
JEL-codes: I10 I12 I18 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2015-06
New Economics Papers: this item is included in nep-cta, nep-hea and nep-hrm
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Published - published in: Health Economics, 2016, 25 (10), 1326-40.

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Journal Article: Physician Payment Contracts in the Presence of Moral Hazard and Adverse Selection: The Theory and Its Application in Ontario (2016)
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