Health Provider Networks, Quality and Costs

J. Boone, C. Schottmuller

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Abstract

We provide a modeling framework to think about selective contracting in the health care sector. Two health care providers differ in quality and costs. When buying health insurance, consumers observe neither provider quality nor costs. We derive an equilibrium where health insurers signal provider quality through their choice of provider network. Selective contracting focuses on low cost providers. Contracting both providers signals high quality. Market power tends to lower quality and lead to inefficiency. In a dynamic extension of the model, providers under-invest in quality while there can be both over and under-investment in cost reductions if there is a monopoly insurer while an efficient investment equilibrium exists with insurer competition.
Original languageEnglish
Place of PublicationTilburg
PublisherCentER, Center for Economic Research
Number of pages38
Volume2015-005
Publication statusPublished - 12 Jan 2015

Publication series

NameCentER Discussion Paper
Volume2015-005

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Keywords

  • selective contracting
  • exclusive contracts
  • common contracts
  • managed care
  • health care quality
  • signaling

Cite this

Boone, J., & Schottmuller, C. (2015). Health Provider Networks, Quality and Costs. (CentER Discussion Paper; Vol. 2015-005). Tilburg: CentER, Center for Economic Research.