Incentives in HMOs

Martin Gaynor, James Rebitzer and Lowell Taylor

No 8522, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study the effect of physician incentives in an HMO network. Physician incentives are controversial because they may induce doctors to make treatment decisions that differ from those they would chose in the absence of incentives. We set out a theoretical framework for assessing the degree to which incentive contracts do in fact induce physicians to deviate from a standard guided only by patient interests and professional medical judgement. Our empirical evaluation of the model relies on details of the HMO's incentive contracts and access to the firm's internal expenditure records. We estimate that the HMO's incentive contract provides a typical physician an increase, at the margin, of $0.10 in income for each $1.00 reduction in medical utilization expenditures. The average response is a 5 percent reduction in medical expenditures. We also find suggestive evidence that financial incentives linked to commonly used quality measures may stimulate an improvement in measured quality.

JEL-codes: I10 I11 (search for similar items in EconPapers)
Date: 2001-10
New Economics Papers: this item is included in nep-hea and nep-ias
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Citations: View citations in EconPapers (8)

Published as Gaynor, M., J Rebitzer, and L. Taylor. “Physician Incentives in HMOs." Journal of Political Economy (August 2004).

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Related works:
Working Paper: Incentives in HMO's (2002)
Working Paper: Incentives In HMOs (2001)
Working Paper: Incentives In HMOs (2001)
Working Paper: Incentives in HMOs
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