Venue: The Fuqua School of Business, Duke University, 1 Towerview Drive, Durham, NC 27708-0120
Presentation
Asymmetric Information, Contract Structures and Performance: An Analysis of Payer/Provider Contracting for Transplant Services.
It has long been recognized that providers and insurers face a difficult challenge in writing and agreeing on well performing medical-care contracts. The problem is acute asymmetric information. Providers possess more information regarding the necessity and the efficiency of the care they provide. Furthermore, they have an incentive to devote more care-resources than is optimal since doing so will most likely raise their income. In this paper we apply contract theory in the presences of asymmetric information to data on organ transplants. Organ transplants are exceedingly expensive procedures with payments often exceeding $150,000. Furthermore, the cost is heterogeneous – it varies by the health status of the patient (along several dimensions) and the match between the organ and the patient. The variance in these factors differs by type of transplanted organ. Many of these dimensions are difficult for the insurer to observe. We consider two key questions. First, given the asymmetric information challenges, how do actual contracts compare to constrained efficient contracts, and to what extent can actual contracts improve efficiency? Second, how can the measureable heterogeneity be incorporated into the contracts to increase efficiency? To address these questions, we have obtained a 10-year panel data on actual contracts between an insurer and over 100 transplant hospitals. We supplement this information with all of the relevant administrative claims for all transplants covered by the insurer.