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

See all articles by Jasmin Kantarevic

Jasmin Kantarevic

Ontario Medical Association; IZA Institute of Labor Economics

Boris Kralj

Ontario Medical Association

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

Kantarevic, Jasmin and Kralj, Boris, Physician Payment Contracts in the Presence of Moral Hazard and Adverse Selection: The Theory and its Application to Ontario. IZA Discussion Paper No. 9142, Available at SSRN: https://ssrn.com/abstract=2655091 or http://dx.doi.org/10.2139/ssrn.2655091

Jasmin Kantarevic (Contact Author)

Ontario Medical Association ( email )

525 University Ave., Suite 300
Toronto, Ontario M5G 2K7
Canada

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Boris Kralj

Ontario Medical Association ( email )

525 University Ave., Suite 300
Toronto, Ontario M5G 2K7
Canada

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