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Selection of treatment under prospective payment systems in the hospital sector

Siciliani, L. (2006) Selection of treatment under prospective payment systems in the hospital sector. Journal of Health Economics, 25 (3). pp. 479-499. ISSN 0167-6296

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A model of contracting for hospital treatments is presented. For a given diagnosis of the patient, two treatments are available: a high-intensity (surgical) treatment and a low-intensity (medical) treatment. A purchaser (the National Health Service, public or private insurer) offers a contract to the provider (the hospital) to maximise the patients’ benefit net of costs. We show that if the average severity of the patient is private information known only by the provider, the hospital has an incentive to over-provide the surgical treatment to the low-severity patients. The optimal contract with asymmetric information is such that hospitals that provide a higher share of surgical treatments receive a higher price for the surgical treatment and a lower price for the medical treatment. This situation differs from current remuneration systems in which the price for each type of treatment is uniform. A related result is that with asymmetric information the optimal contract involves a higher transfer than with symmetric information.

Item Type: Article
Institution: The University of York
Academic Units: The University of York > Centre for Health Economics (York)
Depositing User: York RAE Import
Date Deposited: 22 Apr 2009 08:54
Last Modified: 22 Apr 2009 08:54
Published Version: http://dx.doi.org/10.1016/j.jhealeco.2005.09.007
Status: Published
Publisher: Elsevier Science B.V., Amsterdam.
Identification Number: 10.1016/j.jhealeco.2005.09.007
URI: http://eprints.whiterose.ac.uk/id/eprint/6685

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