Ch 10.docx

8 Pages
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Department
Economics
Course Code
ECO440H5
Professor
Multiple Professors

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Description
Ch 10 Provider Paymentsagent a person who acts on behalf of anotheragency theory or principalagent theory describes the problems that arise under conditions of asymmetric information between two parties the principal and the agentCapitation payment a predetermined amount of money per member of a defined population served by the thirdparty payer given to a provider to deliver specific servicesDRG diagnosisrelated group HRG health care resource group a casemix classification scheme which provides a means of relating the number and type of actue inpatients treated in a hospital to the resources required by the hospitalFeeforservice FFS payment mechanism where providers receive a specific amount of money for each service providedincentive factor that motivates a particular course of action or encourages people to behave in a certain wayprincipal a person on whose behalf an agentsIncentivesgenerally speaking an incentive can be defined as any factor that motivates a particular course of action or encourages people to behave in a certain way usually in order to improve their own situation where a disincentive is the reversein health services incentives might encourage health care providers to work more or less hard both in terms of the quality and quantity of work providedalthough economics is mostly concerned with financial incentives there are other types of incentiveAgents behaviors can also be driven by moral incentives created by laws and legal rules which if broken will result in punishment or imprisonmentAgency TheoryDescription of the modelthe principalagent relationship relates to a situation where a first party the principal wants the second party the agent to perform a particular task on their behalf to achieve their objectivesthe interests of the two partie are divergent because the task should directly benefit the principalbut it is costly to the agent who has to exert some effort to perform itin addition to these divergent interests the agency relationship is characterized by an asymmetry of information between the agent and the principalin many instances it is very difficult to measure and evaluate the performance of agents objectivelythe principal cannot observe the performance of the agent or does not know if the agent has performed in the best possible way he or she couldthe question that lies at the heart of principalagent theory therefore is how to motivate the agent to act in the interest of the principal or how to design incentives that will align the interests of the two partiesAgency theory in the health sectora patient consults a health professional to act on their behalf and to prescribe the best course of treatment for their medical conditionyet instead of following the unique interests of the patient the health care provider may seek to maximize their own utilityassuming the health professionals utility is maximized through increased revenues and more leisure time they are likely to minimize effort ex The amount of time spent examining the patient or provide unnecessary care or treatment where there are financial benefits from the additional services provided
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