Question

Everybody describe some healthcare situations in which an agent has taken advantage of a principal.

Also describe some healthcare transactions that have not taken place because of fears about asymmetric information.

Why have economic analyses of clinical and administrative innovations become more important?

Answer 1

        A principal is an organization or individual that is represented by an agent. An agent is then a person who takes actions on behalf of another person, which would be the principal. Normally the agent has better, and more information collected, and unless the principal is careful then the agent may take advantage of this information asymmetry. Asymmetric information is a concern when the interests of the parties diverge in a meaningful way, the parties have an important reason to strike a deal, and determining whether the explicit or implicit terms of the deal have been followed is difficult. An example of a healthcare situation where an agent has taken advantage of a principal would be when an agent overrules the principal and decide what they feel is correct before confronting it to the principal. A healthcare transaction that has not taken place due to fears about asymmetric information could be a moral hazard. Situations such as when an insurer may refuse to cover services thought likely to be abused since they cannot easily discern whether a treatment is really needed. They may then require substantial consumer payments to restrain demand or prior authorization before providing coverage. This affects the use of helpful services because the services may cost too much. Asymmetric information is also intrinsic to most provider-patient relationships. Patients typically seek providers’ services because they want information, so the threat of opportunism is always present.

            Until recently, economic analyses of clinical interventions were uncommon. There was little to no incentives for healthcare administrators to measure whether procedures were worth their costs. As the emergence of bundled payment systems and the growth of capitation occurred, then these analyses became more prominent. The system of bundled payments is also called episode payment, and the development of capitation payments are used by managed care organizations to control health care costs. Capitation payments control the use of health care resources by putting the physician at financial risk for services provided to patients. These are linked to financial rewards or incentives to provide the best care in the best way possible. Economic analyses of clinical interventions are needed because public and private insurers need information on which to base coverage decisions. These analyses are designed to support decision making, not to make decisions. They provide a framework for synthesizing and understanding information. The importance of being able to compare the right options is what these analyses allow organizations, providers, to do.

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