American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Optimal Contracting with Altruistic Agents: Medicare Payments for Dialysis Drugs
American Economic Review
vol. 113,
no. 6, June 2023
(pp. 1530–71)
Abstract
We study health-care provider agency and optimal payments, considering an expensive medication for dialysis patients. Using Medicare claims data we estimate a structural model of treatment decisions, in which providers differ in their altruism and marginal costs, and this heterogeneity is unobservable to the government. In a novel application of nonlinear pricing methods, we empirically characterize the optimal contracts in this environment. The optimal contracts eliminate medically excessive dosages and reduce expenditures, resulting in approximately $300 million in annual gains from better contracting. This approach could be applied to a broad class of problems in healthcare payment policy.Citation
Gaynor, Martin, Nirav Mehta, and Seth Richards-Shubik. 2023. "Optimal Contracting with Altruistic Agents: Medicare Payments for Dialysis Drugs." American Economic Review, 113 (6): 1530–71. DOI: 10.1257/aer.20210208Additional Materials
JEL Classification
- D64 Altruism; Philanthropy; Intergenerational Transfers
- D86 Economics of Contract: Theory
- H51 National Government Expenditures and Health
- I11 Analysis of Health Care Markets
- I13 Health Insurance, Public and Private
- J33 Compensation Packages; Payment Methods
- L21 Business Objectives of the Firm