Provider payment incentives - Agency theory & models of physician behaviour - Agency theory

4 important questions on Provider payment incentives - Agency theory & models of physician behaviour - Agency theory

Where does the agency theory focus on?

They focus on the contractual relationships between two unequally informed parties:
  • well-informed agent (care provider)
  • ill-informed principal (care purchaser)

What happens when there are conflicting interests?

It could lead to agency problems, such as: supplier-induced demand

How can financial incentives be used to prevent or solve agency problems?

By aligning interests of providers-as-agent and purchaser-as-principal
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How can an incentive contract entail provider payments?

The well-informed agent is given a contractually enforced task to perform on behalf of the principal. The theory assumes that the behaviour of both parties (agent and principal) is driven by self-interest, or at least in part. The principal can then use incentives to induce desired behaviour of the agent.

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