Health Provider Networks, Quality and Costs

39 Pages Posted: 2 Feb 2015

See all articles by Jan Boone

Jan Boone

Tilburg University - Center for Economic Research (CentER); Centre for Economic Policy Research (CEPR); TILEC

Christoph Schottmüller

University of Cologne; Tilburg Law and Economics Center (TILEC)

Multiple version iconThere are 3 versions of this paper

Date Written: February 2015

Abstract

We provide a modeling framework to think about selective contracting in the health care sector. Two health care providers differ in quality and costs. When buying health insurance, consumers observe neither provider quality nor costs. We derive an equilibrium where health insurers signal provider quality through their choice of provider network. Selective contracting focuses on low cost providers. Contracting both providers signals high quality. Market power tends to lower quality and lead to inefficiency. In a dynamic extension of the model, providers under-invest in quality while there can be both over and under-investment in cost reductions if there is a monopoly insurer while an efficient investment equilibrium exists with insurer competition.

Keywords: common contracts, exclusive contracts, health care quality, managed care, selective contracting, signaling

JEL Classification: D86, I11, L13

Suggested Citation

Boone, Jan and Schottmüller, Christoph, Health Provider Networks, Quality and Costs (February 2015). CEPR Discussion Paper No. DP10381, Available at SSRN: https://ssrn.com/abstract=2559322

Jan Boone (Contact Author)

Tilburg University - Center for Economic Research (CentER) ( email )

P.O. Box 90153
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Centre for Economic Policy Research (CEPR)

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TILEC ( email )

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Tilburg, 5000 LE
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Christoph Schottmüller

University of Cologne ( email )

Albertus-Magnus-Platz
Cologne, 50923
Germany

Tilburg Law and Economics Center (TILEC) ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands

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