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Published on: February 16, 2011
Provider choice of quality and surplus
Nolan Miller1, Karen Eggleston, Richard Zeckhauser
1Kennedy School of Government, Harvard University, Cambridge, MA 02138, USA. nolan_miller@harvard.edu
Summary
Healthcare providers’ quality decisions depend on financial surplus retention. Higher retention increases quality for risk-averse providers (risk aversion > 1), while lower retention benefits less risk-averse providers (risk aversion < 1).
Area of Science:
- Health Economics
- Healthcare Management
- Decision Theory
Background:
- Institutional healthcare providers balance quality of care with financial surplus.
- External financial claims on provider surplus can influence decision-making.
Purpose of the Study:
- To analyze how outside claims on financial surplus impact healthcare provider quality choices.
- To investigate the role of the 'rate of surplus retention' in quality decisions.
Main Methods:
- Economic modeling of provider utility functions, incorporating quality and financial surplus.
- Utilizing the Arrow-Pratt coefficient of relative risk aversion to measure utility curvature.
- Analyzing the relationship between surplus retention rate and quality choice.
Main Results:
- The impact of increasing the surplus retention rate on quality is contingent on the provider's risk aversion.
- Providers with a relative risk aversion coefficient greater than 1 will increase quality as retention rate rises.
- Providers with a relative risk aversion coefficient less than 1 will decrease quality as retention rate rises.
Conclusions:
- Healthcare provider quality is sensitive to financial surplus retention policies.
- Understanding provider risk aversion is crucial for predicting responses to financial incentives.
- Policy interventions affecting surplus retention can significantly alter healthcare quality.
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