Physician Payment Contracts in the Presence of Moral Hazard and Adverse Selection: The Theory and its Application to Ontario
38 Pages Posted: 4 Sep 2015
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: physician remuneration, moral hazard, adverse selection, Ontario
JEL Classification: I10, I12, I18
Suggested Citation: Suggested Citation