Bond, Amelia Mcfadden
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PublicationNonlinear Physician Performance Contracts(2018-01-01) Bond, Amelia McfaddenPolicymakers have increasingly focused on the design of provider contracts to reduce health care costs and increase care quality. Many of these contracts provide bonus payments to providers contingent on meeting externally set performance threshold levels. Using data from a large insurer in Hawaii, this paper estimates physician responsiveness to two features of these contracts - 1) threshold level and 2) bonus amount - for ten preventative process measures. I estimate provider performance response using a large discrete change in a single measure's threshold level and bonus amount during the sample period. I also estimate a pooled provider performance response across all measures using two instrumental variables. I find that a one percentage point increase in threshold location leads to a 0.3 to 0.5 percentage point increase in performance the subsequent quarter. I do not detect an average response to bonus size. Next I explore mechanisms for these responses. I find heterogeneous responses based on prior performance: low performing physicians are more responsive to threshold level, and high performing physicians are responsive to bonus amount. I do not find evidence for physicians increasing effort near the end of a time period alleviating concerns over decreased access for other types of patients. Finally, I find some evidence that the additional patients screened are higher risk and higher cost suggesting the marginal benefit of screening increases. My results demonstrate that the marginal bonus amount has little effect on provider effort and incentivizes already high-performing physicians. Small increases in threshold levels improves performance without increasing cost. These results have implications for innovations in physician payment models and contract designs.