Asymmetric Information and Outcome-Based Compensation in Health Care - Theoretical Implications

University of Bayreuth Economics Discussion Paper No. 01-05

29 Pages Posted: 18 May 2005

Date Written: January 2005

Abstract

The discussion about health care systems focuses on the dynamics of expenditures and on the weak growth of revenues. In this discussion, it is widely overseen that medical expenditures and the supply of medical services depend crucially on the compensation of physician services. The paper analyzes the implementation of an outcome-based payment system in the presence of asymmetric information. Two cases are studied in detail. First, the common situation of physician's moral hazard is analyzed. Second, a double moral hazard model is developed. Here, the patient's actions influence health outcome and cannot be monitored by the physician. It is shown that the choice of insurance and payment contracts depends on the characteristics of asymmetric information. In addition, lack of knowledge about health status and productivity of health inputs prevent a solution using outcome-based contracts.

Keywords: Outcome-based contract, double moral hazard, health policy

JEL Classification: I11, I12, D82

Suggested Citation

Schneider, Udo, Asymmetric Information and Outcome-Based Compensation in Health Care - Theoretical Implications (January 2005). University of Bayreuth Economics Discussion Paper No. 01-05, Available at SSRN: https://ssrn.com/abstract=722473 or http://dx.doi.org/10.2139/ssrn.722473

Udo Schneider (Contact Author)

Techniker Krankenkasse ( email )

Bramfelder Str. 140
D-22305 Hamburg
Germany

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