The Benefits-Value-Advisor Program For Shoppable Medical Services

Posted: 5 Mar 2021 Last revised: 12 Sep 2021

See all articles by Jingyao Huang

Jingyao Huang

The University of Texas at Austin

Diwakar Gupta

McCombs School of Business

Date Written: March 2, 2021

Abstract

In healthcare markets, there is often a great deal of variation in prices charged by providers of non-urgent and routine medical procedures such as MRI and CT Scan. Price differences are typically not related to either the complexity or the quality of services provided. Some insurers have recently introduced the Benefits-Value-Adviser (BVA) program to help improve the quality and reduce the cost of such services. In this paper, we ask and answer the following question: can the BVA program add value? Value is defined as the cost of all services normalized by quality. We incorporate the characteristics of healthcare markets in a game-theoretic model of provider competition to derive the providers' decisions in price-only and comprehensive equilibrium settings. In the price-only setting, providers can only change prices whereas in the comprehensive model, providers make quality and marketing activity level decisions first, followed by pricing decisions. We find that the magnitudes of changes in quality and price sensitivity as a result of the BVA program influence the performance of the BVA program. In the price-only equilibrium, the BVA program is guaranteed to add value in a market where the differences in providers' pre-existing quality and marketing activity levels are both simultaneously low. Conversely, it is very likely to fail in a market with low marketing activity level difference but high quality difference. Additionally, through the numerical examples, we find that in the comprehensive model, the BVA program adds more value when it can affect a large increase in quality sensitivity relative to the change in price sensitivity.

Keywords: Benefits-value-adviser program, provider payment innovation, health insurance, competition

Suggested Citation

Huang, Jingyao and Gupta, Diwakar, The Benefits-Value-Advisor Program For Shoppable Medical Services (March 2, 2021). Available at SSRN: https://ssrn.com/abstract=3798075 or http://dx.doi.org/10.2139/ssrn.3798075

Jingyao Huang (Contact Author)

The University of Texas at Austin ( email )

United States

Diwakar Gupta

McCombs School of Business ( email )

Austin, TX 78712
United States

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