4 - The Physician-Patient Relationship(1)

4 - The Physician-Patient Relationship(1) - The...

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Unformatted text preview: The Physician-Patient Relationship November 17, 2011 Topics Physician as an agent Supplier Induced Demand Lather, rinse, repeat Article on SID Cromwell & Mitchell (1986) Small Area Variations Confusion about the production function Terms Introduced Principal/agent relationship Supplier-induced demand (SID) Target income hypothesis FFS (fee for service) Capitation Selective contracting Preferred provider panel Utilization review Small area variations Coefficient of variation Reading Text, pp. 302-304, pp. 306-314 Cromwell & Mitchell (1986) We have talked about the physician-firm in in the market using the standard competitive model Now lets discuss the physician-patient relationship and how that may affect application of the competitive model The Principal-Agent Relationship Patient physician relationship can be considered an example of a principal/agent relationship. A principal agency relationship occurs whenever a principal (the patient) delegates authority to the agent (physician). Essentially the principal contracts with an agent to carry out the principals wishes. Principal recognizes that he is relatively uninformed about the most appropriate decisions to be made and that the deficiency is best resolved by having an agent. Asymmetric information and the principal agent relationship are closely linked. The Principal-Agent Relationship Principal agent problems are very common in other areas, any contractual relationship (i.e. hire a plumber, a lawyer) Ideally, the agent should carry out the wishes of the principal exactly, or do whatever the principal would have done had she had the same information. Perfect Agent With a perfect agent, this is an efficient arrangement. However, whenever the decision-maker is different from the person the decision affects, there is potential for a sub-optimal outcome. The principal faces the challenge of trying to ensure that the agent is carrying out her wishes. The Principal-Agent Relationship Principal and agent may have different objectives Physician may make decisions to maximize his own utility instead of the patients Imperfect agent may have greater opportunities to act in his own self-interest in less competitive markets - not clear what a perfect agent would do in this case: Max patient health? Max patient utility (consider patient preferences/income)?...
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4 - The Physician-Patient Relationship(1) - The...

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