Health Provider Networks, Quality and Costs

TILEC Discussion Paper No. 2015-003

CentER Discussion Paper No. 2015-005

38 Pages Posted: 27 Jan 2015

See all articles by Jan Boone

Jan Boone

Tilburg University - Center for Economic Research (CentER); Centre for Economic Policy Research (CEPR); TILEC

Christoph Schottmüller

University of Cologne; Tilburg Law and Economics Center (TILEC)

Multiple version iconThere are 3 versions of this paper

Date Written: January 12, 2015

Abstract

We provide a modeling framework to think about selective contracting in the health care sector. Two health care providers differ in quality and costs. When buying health insurance, consumers observe neither provider quality nor costs. We derive an equilibrium where health insurers signal provider quality through their choice of provider network. Selective contracting focuses on low cost providers. Contracting both providers signals high quality. Market power tends to lower quality and lead to inefficiency. In a dynamic extension of the model, providers under-invest in quality while there can be both over and under-investment in cost reductions if there is a monopoly insurer while an efficient investment equilibrium exists with insurer competition.

Keywords: selective contracting, exclusive contracts, common contracts, managed care, health care quality, signaling

JEL Classification: D86, I11, L13

Suggested Citation

Boone, Jan and Schottmüller, Christoph, Health Provider Networks, Quality and Costs (January 12, 2015). CentER Discussion Paper No. 2015-005. Available at SSRN: https://ssrn.com/abstract=2555736 or http://dx.doi.org/10.2139/ssrn.2555736

Jan Boone (Contact Author)

Tilburg University - Center for Economic Research (CentER) ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 466 2399 (Phone)
+31 13 466 3042 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

TILEC ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands

Christoph Schottmüller

University of Cologne ( email )

Albertus-Magnus-Platz
Cologne, 50923
Germany

Tilburg Law and Economics Center (TILEC) ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands

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