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Related Concept Videos

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Assessing Differences in Sperm Competitive Ability in Drosophila
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Managing imperfect competition by pay for performance and reference pricing.

Henry Y Mak1

  • 1Department of Economics, Indiana University-Purdue University Indianapolis, 425 University Boulevard, Indianapolis, IN 46202, USA.

Journal of Health Economics
|December 24, 2017
PubMed
Summary

This study examines health service market regulation, proposing a two-sided approach. Optimal strategies include value-based pricing for consumers and pay-for-performance incentives for providers to improve healthcare quality.

Keywords:
ImplementationManaged competitionMultitaskingPay for performanceProspective paymentReference pricing

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Area of Science:

  • Health Economics
  • Market Regulation
  • Behavioral Economics

Background:

  • Managed health service markets feature provider competition on quality.
  • Payer-set copayments and provider reimbursements influence market dynamics.
  • Consumer perception and provider incentives impact service quality decisions.

Purpose of the Study:

  • To determine optimal two-sided regulation schemes in managed health service markets.
  • To analyze the effectiveness of value-based reference pricing and pay-for-performance.
  • To identify conditions under which pay-for-performance may be suboptimal.

Main Methods:

  • Economic modeling of a managed health service market.
  • Analysis of provider competition with differentiated service qualities.
  • Derivation of optimal regulatory instruments based on market parameters.

Main Results:

  • Optimal regulation involves value-based reference pricing for consumers.
  • Pay-for-performance is recommended when consumers misperceive benefits or providers have intrinsic quality motivation.
  • Optimal bonuses depend on demand elasticity, technology, and provider traits.

Conclusions:

  • A two-sided regulatory approach optimizes health service markets.
  • Pay-for-performance effectiveness is contingent on consumer rationality and contractibility of service qualities.
  • Prospective payment may be superior to pay-for-performance in specific scenarios.