Physician reimbursement and technology adoption

This study analyses the incentives of health care providers to adopt new technologies in a world with ex-post moral hazard. It is shown that in a second best efficient world with respect to insurance coverage, a linear remuneration scheme implements the adoption of second best efficient technologies only in special cases. Under a (third best) standard coinsurance contract, the adequate reimbursement rule is characterised depending on the characteristics of the technology and on patients' demand elasticities with respect to monetary and non-monetary costs. A shift from fee-for-service to capitation is likely to display undesirable incentives for very severe illnesses by inducing a reduction in the technically feasible level of healing or an increase in non-monetary costs of treatment. (c) 2005 Elsevier B.V. All rights reserved.