Question
Economics of Pay-For-Performance Contracts Below is a simple algebraic representation of a physician pay-for-performance contract. p=C+ d(T - C) where p=Physician payment per patient T=HMO's
Economics of Pay-For-Performance Contracts
Below is a simple algebraic representation of a physician pay-for-performance contract.
p=C+ d(T - C)
where
p=Physician payment per patient
T=HMO's target payment per physician.
C= Physician expenses per patient
d= Physician Risk sharing parameter.
Note that the T is the rate the HMO would pay under hard capitation. Discuss the incentives.
Problem 1.Calculate the Physician's profits/loss under the following scenarios.
a.T=$100C =$80d= 25%
b.T=$100C = $120d= 25%
Show your calculations for problem 1; briefly comment on the interpretation
Problem 2.Calculate the Physician's profits/loss under the following scenarios.
a.T=$100C =$80d= 75%
b.T=$100C = $120d= 75%
Show your calculations for problem 2; briefly comment on the interpretation
Problem 3.You are about to graduate medical school, and you are considering joining an IPA (Independent Practice Association).You have a choice between joining two competing IPAs that are identical, except that one IPA has an HMO contract described in (1), while the other has a contract described in (2).Your cost of practice depends on the severity-of-illness of patients who walk through your door, so you have no way of knowing a priori what these costs will be.
Which contract would you choose:
a. based on economic incentives (briefly explain)
b. based on any other considerations (briefly explain).
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