Optimal Contracting with Altruistic Agents: Medicare Payments for Dialysis Drugs
This seminar is hosted by Luigi Siciliani.
We study healthcare provider agency and optimal payment policy in the context of 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 unrestricted contracts in this screening environment with multidimensional heterogeneity.
The optimal contracts initially pay similar amounts as the one used by Medicare at the time, but the marginal payment rates decline precipitously at higher dosages. Adopting the optimal contracts would eliminate medically excessive dosages and substantially reduce expenditures, resulting in approximately 300 million dollars in gains from better contracting. The approach we develop could be applied to a broad class of problems in health care payment policy.
Joining the speaker are Martin Gaynor (Carnegie and National Bureau of Economic Research) and Nirav Mehta (Western Ontario).