ESSAYS IN HEALTH ECONOMICS: The Design of Primary Care Incentives

Wu, Yunchou
(2020) ESSAYS IN HEALTH ECONOMICS: The Design of Primary Care Incentives. PhD thesis, University of Liverpool.

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The continuous upward trend in health spending and the perpetual rise in the demand for healthcare underlines the importance of designing efficient resource allocation mechanisms. In the healthcare sector, physicians play a crucial role in directing resources. This thesis analyses the design of primary care incentive contracts in presence of two complicating issues. From society’s perspective, the physician may provide an inefficient amount of treatment (“moral hazard”) or be offered a sub-optimal contract (“adverse selection”), as neither the physician’s knowledge about patients’ health nor his personal characteristics be perfectly observed. This thesis is structured into three essays. The first essay discusses theory and evidence related to physician altruism. It also comprehensively surveys optimal incentive contracting when physicians have private information about their characteristics (e.g. costs, abilities), their patients’ health, or their actions (efforts, service qualities). The impact of using different types of restrictions for controlling the cost of physician services are also reviewed. Finally, research gaps in the literature are identified and the context of subsequent analysis is established. The second essay studies the optimal design of publicly funded health insurance schemes when physicians have private knowledge about their preferences and patients’ health as well as being paid on a price per service basis (“fee-for-service”). This is formalised in a math model, where the regulator chooses a policy vector of price, insurance premium and cost-control policies, while physicians subsequently choose medical service quantities. In this setup, it is shown that the welfare-maximizing price system fails to align different providers’ objectives and major trends such as population ageing further exacerbates this distortion. Widely applied physician cost-control restrictions, such as maximal amount of service, fixed budgets or a payment per patient (“capitation”), can be imposed on the price system to improve efficiency. In particular, capitation performs better than other restrictions. The last essay extends the analysis by letting primary care physicians select their practice sizes. The optimal payment must ensure that the entire population has access to healthcare. It is shown that the welfare-maximizing price system induces medical service overproduction and distorts physicians’ incentives. Nevertheless, physician cost-control restrictions are still efficiency enhancing while the highest welfare level is generated by using a capitation. Overall, the thesis provides a framework which not only captures key features of the health market but also can be used to analyse the impact of using different physician cost-control policies.

Item Type: Thesis (PhD)
Uncontrolled Keywords: fee-for-service, physician payment mechanisms, physician cost control policy, altruism
Divisions: Faculty of Humanities and Social Sciences > School of Management
Depositing User: Symplectic Admin
Date Deposited: 14 Aug 2020 10:40
Last Modified: 18 Jan 2023 23:48
DOI: 10.17638/03090824
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