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Title: Health provider networks, quality and costs

Author(s): Jan Boone and Christoph Schottmüller

Publication Date: February 2015

Keyword(s): common contracts, exclusive contracts, health care quality, managed care, selective contracting and signaling

Programme Area(s): Industrial Organization and Public Economics

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.

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Bibliographic Reference

Boone, J and Schottmüller, C. 2015. 'Health provider networks, quality and costs'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=10381