The 131st Annual Meeting (November 15-19, 2003) of APHA

Abstract #60056

Helen Citkina, PhD, School of Public Health, UC-Berkeley, 2901 Claremont Ave, #3, Berkeley, CA 94705, (510)849-2838, hcitkina@uclink.berkeley.edu and Alan D. Mathios, PhD, Policy Analysis and Management, Cornell University, MVR Hall, Ithaca, NY 14853.

This paper uses a principal-agent framework to examine the role that the costs associated with monitoring patient treatment have on health care utilization. When monitoring physician treatment behavior is costly, incentive compatible contracts (as opposed to traditional indemnity fee-for-service contracting) are shown to be more effective at lowering health care utilization. Empirical results confirm that as monitoring costs (measured by the variance in the lengths of stay in a hospital for all patients in a diagnosis category) increase, the differences in lengths of stay in a hospital between fee-for-service and capitation increases with fee-for-service contracting leading to significantly longer stays in hospitals for the same diagnosis category. For surgical procedures where monitoring costs are low, traditional indemnity insurance contracts lead to similar lengths of stay in a hospital as capitated arrangements. Despite the apparent cost savings of using capitated arrangements for diagnoses where monitoring is costly, we find that these arrangements are used in situations where monitoring costs appear to be low. That is, they are most common for diagnosis that have little variation across patients in lengths of stay in a hospital.

Learning Objectives:

• Does monitoring by the insurer contributes to health care utilization and if so, how does it compare to incentive compatible contracts, such as capitation?

Keywords: Health Care Managed Care, Utilization

Presenting author's disclosure statement:
I do not have any significant financial interest/arrangement or affiliation with any organization/institution whose products or services are being discussed in this session.