Physician Payment Contracts In The Presence Of Moral Hazard And Adverse Selection: Theory And Application To Ontario
Jasmin Kantarevic, Boris Kralj
We develop a simple principal–agent model with moral hazard and adverse selection to provide a unified framework for understanding some of the most salient features of the recent physician payment reform in Ontario and its impact on physician behaviour. These features include: (1) physicians can choose a payment contract from a menu that includes an enhanced fee-for-service contract and a blended capitation contract; (2) the capitation rate is higher and the cost-reimbursement rate is lower in the blended capitation contract; (3) physicians sort selectively into the contracts based on their initial productivity; (4) all else equal, physicians in the blended capitation model provide fewer services than physicians in the enhanced fee-for-service model.
physician remuneration, moral hazard, adverse selection, Ontario