Sticking points: common‐agency problems and contracting in the US healthcare system. (1st April 2019)

• Record Type: Journal Article
• Authors: Frandsen, Brigham; Powell, Michael; Rebitzer, James B.
• Is Part Of: Rand journal of economics. Volume 50:Number 2(2019)
• Page Start: 251
• Page End: 285
• Publication Date: 2019-04-01
• Subjects: Industrial organization (Economic theory) -- Periodicals; Microeconomics -- Periodicals; Services publics -- Périodiques; Économie industrielle -- Périodiques; Microéconomie -- Périodiques; 338.6
• DOI: 10.1111/1756-2171.12269
• Languages: English
• ISSNs: 0741-6261

Abstract

Abstract: We propose a "common‐agency" model for explaining inefficient contracting in the US healthcare system. Common‐agency problems arise when multiple payers seek to motivate a provider to invest in improved care coordination. We highlight the possibility of "sticking points, " that is, Pareto‐dominated equilibria in which payers coordinate around contracts which give weak incentives to the provider. Sticking points rationalize three hard‐to‐explain features of the US healthcare system: widespread fee‐for‐service arrangements; problematic care coordination; and the historical reliance on single‐specialty practices to deliver care. The model also analyzes the effects of policies promoting more efficient contracting between payers and providers.