CONTRACTING FOR HEALTH-SERVICES WHEN PATIENT DEMAND DOES NOT REFLECT QUALITY

This paper analyses contracts to keep down costs while maintaining qua lity of health services when patient demand does not reflect quality. There is then a natural role for forms of contract that have emerged d uring the reforms of the NHS in Britain that differ from pure fixed pr ice or cost reimbursement contracts. The optimal form depends on wheth er the provider is entirely self-interested or benevolent in having ge nuine concern for patient welfare. With fully benevolent providers the re are roles for block and cost and volume contracts. With partially b enevolent providers, some degree of cost sharing is typically optimal. (C) 1998 Elsevier Science B.V.