Optimal Contracting with Altruistic Agents: Medicare Payments for Dialysis Drugs
Martin Gaynor, Nirav Mehta, Seth Richards-Shubik
American Economic Review · 2023 · Volume 113 · Issue 6
Abstract
We study health-care provider agency and optimal payments, considering 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 contracts in this environment. The optimal contracts eliminate medically excessive dosages and reduce expenditures, resulting in approximately $300 million in annual gains from better contracting. This approach could be applied to a broad class of problems in healthcare payment policy.
Keywords
Altruism, Philanthropy, Intergenerational Transfers, Economics of Contract: Theory, National Government Expenditures and Health, Analysis of Health Care Markets, Health Insurance, Public and Private, Compensation Packages, Payment Methods, Business Objectives of the Firm
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