Incentives in Hmos

Levy Economics Institute Working Paper No. 340

46 Pages Posted: 4 Nov 2001

See all articles by Martin Gaynor

Martin Gaynor

Carnegie Mellon University; National Bureau of Economic Research (NBER); Leverhulme Centre for Market and Public Organisation

James B. Rebitzer

Boston University School of Management; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics; Bard College - The Levy Economics Institute

Lowell J. Taylor

Carnegie Mellon University - H. John Heinz III School of Public Policy and Management

Multiple version iconThere are 2 versions of this paper

Date Written: August 21, 2001

Abstract

We studied the effect of physician incentives in an HMO network. Physician incentives are controversial because they may induce doctors to make treatment decisions that differ from those they would choose in the absence of incentives. We set out a theoretical framework for assessing the degree to which incentive contracts do, in fact, induce physicians to deviate from a standard, guided only by patient interest and professional medical judgment. Our empirical evaluation of the model relies on details of the HMO's incentive contracts and access to the firms' internal expenditure records. We estimate that the HMO's incentive contract provides a typical physician an increase, at the margin, of $.10 in income for each $1.00 reduction in medial utilization expenditures. The average response is a 5-percent reduction in medical expenditures. We also find suggestive evidence that financial incentives linked to commonly used "quality" measures may stimulate an improvement in measured quality.

Suggested Citation

Gaynor, Martin and Rebitzer, James B. and Taylor, Lowell J., Incentives in Hmos (August 21, 2001). Levy Economics Institute Working Paper No. 340. Available at SSRN: https://ssrn.com/abstract=289571 or http://dx.doi.org/10.2139/ssrn.289571

Martin Gaynor (Contact Author)

Carnegie Mellon University ( email )

H. John Heinz III School of Public Policy
and Management
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James B. Rebitzer

Boston University School of Management ( email )

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National Bureau of Economic Research (NBER)

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IZA Institute of Labor Economics

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Bard College - The Levy Economics Institute

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Lowell J. Taylor

Carnegie Mellon University - H. John Heinz III School of Public Policy and Management ( email )

Pittsburgh, PA 15213-3890
United States
412-268-3278 (Phone)
412-268-7036 (Fax)

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