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Modest risk-sharing significantly reduces health plans’ incentives for service distortion.

Brammli-Greenberg S, Glazer J, Waitzberg R
The European Journal of Health Economics 20, pages 13591374
DOI: 10.1007/s10198-019-01102-w


Public payers often use payment mechanisms as a way to improve the efficiency of the healthcare system. One source of inefficiency is service distortion (SD) in which health plans over/underprovide services in order to affect the mix of their enrollees. Using Israeli data, we apply a new measure of SD to show that a mixed payment scheme, with a modest level of cost-sharing, yields a significant improvement over a pure risk-adjustment scheme. This observation implies that even though mixed systems induce overprovision of some services, their benefits far outweigh their costs.

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