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Supplier Discretion over Provision: Theory and an Application to Medical Care

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  • James Malcomson
Abstract
Suppliers who are better informed than purchasers, such as physicians treating insured patients, often have discretion over what to provide. This paper shows how, when the purchaser observes what is supplied but can observe neither recipient type nor the actual cost incurred, optimal provision differs from what would be efficient if the purchaser had full information, whether or not the supplier can extract informational rent. The analysis is applied to, among other things, data on tests for coronary artery disease and to Medicare diagnosis-related groups defined by the treatment given, not just the diagnosis, illustrating the biases in provision that result.

Suggested Citation

  • James Malcomson, 2005. "Supplier Discretion over Provision: Theory and an Application to Medical Care," CESifo Working Paper Series 1407, CESifo.
    • Handle: RePEc:ces:ceswps:_1407
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Miller, Nolan H., 2006. "Insurer-provider integration, credible commitment, and managed-care backlash," Journal of Health Economics, Elsevier, vol. 25(5), pages 861-876, September.
    2. Griebenow, Malte, 2023. "Should physicians team up to treat chronic diseases?," Journal of Health Economics, Elsevier, vol. 89(C).
    3. Philippe Choné & Stéphane Gauthier, 2017. "Optimal rationing within a heterogeneous population," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 19(3), pages 732-738, June.
    4. Bäuml, Matthias & Kümpel, Christian, 2020. "Hospital responses to the introduction of reimbursements by treatment intensity in a (presumably lump sum) DRG system," hche Research Papers 22, University of Hamburg, Hamburg Center for Health Economics (hche).
    5. Matthias Bäuml & Christian Kümpel, 2021. "Hospital responses to the refinement of reimbursements by treatment intensity in DRG systems," Health Economics, John Wiley & Sons, Ltd., vol. 30(3), pages 585-602, March.
    6. Mathias Kifmann & Luigi Siciliani, 2017. "Average‐Cost Pricing and Dynamic Selection Incentives in the Hospital Sector," Health Economics, John Wiley & Sons, Ltd., vol. 26(12), pages 1566-1582, December.
    7. Kümpel, Christian & Schneider, Udo, 2020. "Additional reimbursement for outpatient physicians treating nursing home residents reduces avoidable hospital admissions: Results of a reimbursement change in Germany," Health Policy, Elsevier, vol. 124(4), pages 470-477.
    8. Martin Chalkley, 2012. "Contracts, Information and Incentives in Health Care," Chapters, in: Andrew M. Jones (ed.), The Elgar Companion to Health Economics, Second Edition, chapter 22, Edward Elgar Publishing.
    9. Liu, Ting & Ma, Ching-to Albert, 2013. "Health insurance, treatment plan, and delegation to altruistic physician," Journal of Economic Behavior & Organization, Elsevier, vol. 85(C), pages 79-96.
    10. De Luca, Giacomo & Lisi, Domenico & Martorana, Marco & Siciliani, Luigi, 2021. "Does higher Institutional Quality improve the Appropriateness of Healthcare Provision?," Journal of Public Economics, Elsevier, vol. 194(C).
    11. Elin Johanna Gudrun Hafsteinsdottir & Luigi Siciliani, 2010. "DRG prospective payment systems: refine or not refine?," Health Economics, John Wiley & Sons, Ltd., vol. 19(10), pages 1226-1239, October.
    12. Elias Carroni & Giuseppe Pignataro & Luigi Siciliani, 2023. "Persuasion in Physician Agency," Discussion Papers 23/01, Department of Economics, University of York.
    13. Siciliani, Luigi, 2006. "Selection of treatment under prospective payment systems in the hospital sector," Journal of Health Economics, Elsevier, vol. 25(3), pages 479-499, May.

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    More about this item

    Keywords

    supplier discretion; procurement; public provision; diagnosis-related groups; medicare; prospective payment; cost-effectiveness;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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