M3: Asymmetric information, agency and supplier-induced demand
17 important questions on M3: Asymmetric information, agency and supplier-induced demand
Healthcare markets consist of three parties, which three? And what are the relationships between the three?
- Patient (principal) - provider (agent/GP)
- Provider - payer
- Patient - payer (insurer)
Under which condition will an increase in the number of providers lead to an increase in price?
- Medical care is a reputation good (consumer makes decision of using the good based on info from friends/family)
- The market is monopolistic competitive
One issue of principal-agent is moral hazard. Give three problems that come with moral hazard? And explain them.
- Ex ante: patients may take less preventive action due to insurance.
- Ex post: patients may use more, or more expensive, healthcare due to insurance.
- Provider/supplier induced demand: physicians may prescribe more, or more expensive, healthcare due to insurance.
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How to prevent moral hazard?
Deductible
Co-payment
One issue of principal-agent is adverse selection. What is the problem that comes with this? And who is the agent and the principal?
result: elimination of the health insurance market
Agent: applicant for insurance
Principal: insurer
What is the lemon principle and the adverse death spiral?
Death spiral: insurance only pays for unhealthy because unhealthy remain and healthy drop out (don't buy insurance). The costs and the premium rise and we reach a circle. This leads to the adverse selection death spiral.
Which three problems arise with the principal-agent model?
- Moral hazard
- Adverse selection
- Supplier induced demand
A shift in the supply and demand curve. Which one shifts first in SID?
True of false?
SID is more likely when:
- Providers are paid on an FFS.
- Fees do not exceed marginal cost of providing extra services.
- Patients are not covered by health insurance
- Patients are free to choose a GP
- Ambiguity / risks in the diagnosis
- True
- False, more likely when fees exceed marginal costs
- False, more likely when patients are fully covered.
- True
- True
Give the utility model with tis inputs and the sign of each input.
Y = income, +
L = Leisure, +
SID = Supplier indcued demand, -
Who is the principal and who is the agent in asymmetric information and agency problems?
Name two strategies to reduce principal-agent problems.
- Reduce existing information asymmetries
- Align agent-principal interest
Study Douven et al. (2015) The effect of physician remuneration on regional variation in hospital treatments.
Result: Utilization rates higher in areas with more FFS physicians: After (indirectly) controlling for differences in health status Strong effect for supply sensitive treatment
Validity test: hip fracture treatment density not related to physician remuneration
In the theoretical model of SID, where do the financial incentives (FFS and capitation) lead to?
Capitation: evidence of underprovision
Study Rizzo & Zeckhauser (2003): Give the explanation of the target reference income in the theoretical model of SID
Examples of aligning agentprincipal interests
- Contract design (e.g. payment methods)
- Selection of agents
- Establish long-term relationships
- Reputation mechanism
- Peer pressure
- Codes of conduct / ethical constraint
- Presence of informed consumers
- Judicial claims / threat of malpractice suits
- Innovative payment mechanisms
- “Pay-for-performance” (P4P)
What is the agency theory?
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