Cost-share Incentives Research Articles

Cost-sharing incentive for collaborative innovation between main manufacturer-core supplier based on risk factors

This paper considers the “main manufacturer-supplier” model in collaborative cooperation among firms which requires the leader to invest significant resources and bear huge risks. However, few scholars simultaneously consider innovation risks and incentive issues under the model. We construct a Stackelberg game incentive model with different cost-sharing ratios under the risk of technological innovation. We characterize the equilibrium of the model and highlight the key role played by the main manufacturer and supplier. The results are as follows: (a) Main manufacturer can implement the cost-sharing incentive strategy under certain conditions, which is, its profit coefficient is greater than 0.75 times that of supplier and the cost-sharing ratios expected coefficient is greater than the minimum threshold. (b) The optimal cost-sharing ratio is directly proportional to the profit coefficient of the main manufacturer, inversely proportional to that of the supplier, and shows an inverted U-shape function with the probability of successful technological innovation. (c)This strategy can motivate suppliers to invest more resources, reduce the investment of the main manufacturer, simultaneously increase the profits of the main manufacturer and supplier in the certain ranges of innovation success probability and profit coefficients, with significant incentive effects.

Choosing Nitrogen Application Rate Recommendation Given Florida’s Regulatory Water Policy

State and federal policies in the United States focus on agricultural best management practices (BMP)—such as improving nutrient management—to address water quality issues. BMP development is a challenging process as a new BMP may also affect farm profitability. This article explores the economic feasibility of nitrogen (N) management programs, including nitrogen application rates (N rates), given alternative scenarios for current nitrogen use and producer risk perceptions of carrot production in Florida. In this study, eight alternative N rates are ranked to find the economically optimal BMP. Carrot profitability is determined based on carrot yields per hectare, input costs, and carrot sale prices, using data from a 2-year carrot production experiment. The analysis applied stochastic simulation to account for the uncertain factors by using Simetar Add-In for Excel. We found that 224 kg·ha−1 N fertilizer rate is the most preferred by the producers among the eight rates considered. According to Florida’s agricultural water policy, BMP recommendations should balance water quality improvements and agricultural productivity. We consider the potential reduction of nitrogen fertilizer rate BMP from 224 kg·ha−1 to 168 kg·ha−1 and show that the effect of such reduction depends on producers’ current fertilizer application rates and their risk aversion levels. For example, reducing the N fertilizer rate from 336 kg·ha−1 to 168 kg·ha−1 decreases mean net returns by only 2% ($49/ha). In contrast, reducing the nitrogen fertilizer rate from 224 kg·ha−1 to 168 kg·ha−1 reduces the mean net returns by $151/ha, with an almost 10% reduction in the certainty equivalent of the net returns (for extremely risk-averse producers). Overall, if most producers in the region are very or extremely risk-averse, and if most of them operate close to the optimal level of fertilizer use, then setting the more restrictive BMP of 168 kg·ha−1 N can be perceived as undermining their economic profitability and require significant cost-share incentives to ensure targeted 100% adoption of BMP recommendations.

Overtreatment and benevolent provider moral hazard: Evidence from South African doctors

Overtreatment is widespread in health, with potentially dire consequences for patients, health systems and public health. It may be fueled by providers when they do not bear the cost of treatment (moral hazard), even they do not profit financially from it (i.e. benevolent providers). We test this hypothesis by creating an exogeneous change in the incentives faced by private doctors in South Africa. We find that provider moral hazard has no effect on overtreatment in volume but fuels overtreatment in cost. By contrast, when they bear the marginal treatment cost, doctors choose cheaper drug. While these results suggest that provider moral hazard contributes to overtreatment in primary care, we consider other plausible channels, such as responses to a perceived demand for high-quality drugs or market segmentation. We discuss the potential scope for supply-side cost-sharing incentives to reduce inefficiency in future health system reforms in South Africa.

Does the framing of patient cost-sharing incentives matter? the effects of deductibles vs. no-claim refunds

Understanding how health care utilization responds to cost-sharing is of central importance for providing high quality care and limiting the growth of costs. We study whether the framing of cost-sharing incentives has an effect on health care utilization. For this we make use of a policy change in the Netherlands. Until 2007, patients received a refund if they consumed little or no health care; the refund was the lower the more care they had consumed. From 2008 onward, there was a deductible. This means that very similar economic incentives were first framed in terms of smaller gains and later as losses. We find that patients react to incentives much more strongly when they are framed in terms of losses. The effect on yearly spending is 8.6 percent. This suggests that discussions on the optimal design of cost-sharing incentives should also revolve around the question how these are presented to patients.

Price Differences To Insurers For Infused Cancer Drugs In Hospital Outpatient Departments And Physician Offices.

The prices paid in 2019 by Blue Cross Blue Shield health plans in hospital outpatient departments were double those paid in physician offices for biologics, chemotherapies, and other infused cancer drugs (99-104percent higher) and for infused hormonal therapies (68percent higher). Had these plans excluded hospital clinics from their networks, channeling all of the infusions to physician offices, they would have saved $1.28billion per year, or 26percent of what they actually paid. Had they relied on cost-sharing incentives to channel infusions to physician offices-with either uniform 20percent coinsurance or reference pricing-they would have realized savings but increased the financial burden on patients who received care at the higher-price hospital clinics. Under 20percent coinsurance, patients' payment obligations for care at hospital clinics would have exceeded those for care in physician offices by a median of 67percent for biologics, 72percent for chemotherapies, 87percent for hormonal therapies, and 75percent for other cancer drugs. Large savings are potentially available to commercial insurers from shifting cancer infusion care to nonhospital settings, but cost-sharing burdens could become very high for patients.

Reliability improvement incentive strategies in the manufacturing industry

PurposeCompanies face the critical reliability problem of products due to the development of outsourcing. This study intends to provide some feasible solutions for a company to improve the reliability level of products.Design/methodology/approachThe paper considers the reward and reliability decisions regarding a product made with two complementary components from two different suppliers: high-capable and low-capable. Two kinds of reliability improvement incentives (normal incentive and cost-sharing incentive) through which a manufacturer provides a reward and shares the reliability improvement cost with a supplier are discussed. As the Stackelberg leader, the manufacturer determines the strategy, while the suppliers are responsible for determining its reliability. Using a game-theoretic framework, four different contract scenarios are addressed. We develop analytical methods to better understand how the manufacturer decides the incentive mechanism to be used for the suppliers.FindingsThe results show that cost-sharing contracts do not always lead to a higher reliability level and more enormous profits. Setting a target reliability level is better for the manufacturer. The cost-sharing contract is beneficial for a high-capable supplier even though it does not directly participate in that kind of mechanism. A low-capable supplier gains more profit when the manufacturer provides incentive mechanisms that do not specify a target reliability level.Originality/valueThis paper investigates the reliability improvement mechanism used for complementary products and focuses on identifying the optimal decisions when demand is influenced by the gap between the product's failure rate and the standard failure rate.

Risk, cost-share payments, and adoption of cover crops and no-till

The objective of this research is to determine the effect of producer risk preferences on the willingness to adopt cover crops and no-till, given cost-sharing incentives, operator attributes, and farm management characteristics. The analysis extends previous research by showing how producer risk preferences affect the adoption of best management practices (BMPs). Risk aversion was quantified using a risk preference elicitation method that was included in a lottery choice experiment. A survey was conducted with Tennessee row crop producers. Probit regressions were used to determine how risk preferences, cost-share incentives, and respondent characteristics were associated with the adoption of these BMPs. An increase in the cost-share payment for cover crops was associated with an increase in the likelihood of its adoption, but adoption of no-till practices was unaffected by the offered incentive. Cover crop adoption was uncorrelated with risk preferences, but as producer risk aversion increased, the likelihood of adopting no-till diminished. The results could be useful in revising BMP cost-share programs to increase adoption while considering risk preferences. Also, this study will contribute to the academic literature by better guiding future studies in the measurement and assessment of risk and its role in BMP adoption.

Effects of the Affordable Care Act's enhancement of Medicare benefits on preventive services utilization among older adults in the U.S.

Since 2011, the Affordable Care Act (ACA) requires the provision of certain recommended clinical preventive services without cost-sharing for individuals in Medicare. We re-visited the effects of the ACA on preventive services utilization under Medicare, using data from the Medical Expenditure Panel Survey (MEPS) and examined the ACA's longer-term effects on preventive services utilization among Medicare beneficiaries. We analyzed nationally representative data on non-institutionalized Medicare beneficiaries (n = 27,124) from the 2006–2010 and 2012–2016 Medical Expenditure Panel Survey. Preventive services of interest were cholesterol test, blood pressure test, flu shot, endoscopy, blood stool test, clinical breast exam, mammography and prostate exam. We estimated propensity score weighted difference-in-difference (DID) models to test for differences in preventive services utilization based on Medicare insurance status. Nationwide, among beneficiaries with traditional Medicare only, who stood to gain the most from eliminating cost-sharing for preventive services, the percentage of women receiving clinical breast exams rose post-reform (Δ = 8.1%; p < 0.015) as compared to Medicare beneficiaries with supplemental private coverage, while at the same time the percentage receiving other preventive services did not change post-reform (all p > 0.05). Based on this analysis of MEPS data spanning 2006–2016, the ACA's enhancement of Medicare coverage had only modest effects on the percentage of beneficiaries receiving a range of preventive services. Medicare beneficiaries should be better informed of the availability of these services and encouraged by their physicians to avail the no cost-sharing incentive of these reforms.

Does the Framing of Patient Cost-Sharing Incentives Matter? The Effects of Deductibles vs. No-Claim Refunds

Understanding how health care utilization responds to cost-sharing incentives is of central importance for providing high quality care and limiting the growth of costs. While there is compelling evidence that patients react to financial incentives, it is less well understood how and why specific aspects of the design of contracts shape the size of this reaction. In this paper, we focus on the question whether the framing of cost-sharing incentives has an effect on health care utilization. To study this we make use of a policy change that occurred in the Netherlands. Until 2007, patients received a no-claim refund if they consumed little or no health care; from 2008 onward there was a deductible instead. This means that very similar economic incentives were first framed in terms of smaller gains and later as losses. We use claims-level data for a broad sample from the Dutch population to estimate whether the reaction to economic incentives was affected by this. Our empirical approach exploits within-year variation using an instrumental variables approach while controlling for differences across years. Our central finding is that patients react to incentives much more strongly when they are framed in terms of losses. Simulations based on our estimates show that the effect on yearly spending is 8.6 percent. This suggests that discussions on the optimal design of cost-sharing incentives should not only involve coinsurance rates and cost-sharing limits, but also how these are presented to patients.

Cost sharing for timber stand improvements: Inducement or crowding out of private investment?

Cost sharing has been widely used to encourage the management of privately owned forests. While there is evidence of its capacity to promote management activities, it still remains open whether cost sharing induces additional private investments or whether it substitutes public funds for private capital. This study re-examines the latter issue in the case of Finnish family forest owners' pre-commercial and restoration thinnings using data from a nation-wide survey (n=3801). A two-step model of cost-share participation and stand improvements is used to account for the endogeneity of cost-share participation. Cost-share participation was related to personal assistance and clearly encouraged forest owners' engagement in and extent of stand improvements. The inducement or crowding out of private capital is analytically shown to depend on the relative magnitude of forest owners' response to cost-share incentives in each specific situation. In the present case evidence suggests that cost sharing has had an inducement effect on private investment. This is likely related to the advanced personal assistance that has promoted the knowledge of and participation in cost sharing. The findings suggest that cost sharing can be a useful component in a balanced policy mix especially when combined with informational instruments.

A Dominant Maintenance Strategy Assessment Model for Localized Third-Party Logistics Service under Performance-Based Consideration

The partnerships of performance-based contracting (PBC) between government and original equipment manufacturer (OEM) have been well demonstrated in most studies, but very few attempts have been made at such partnerships between a foreign government (FG) and a localized third-party logistics (3PL) supplier while they operated the same system. This article constructs a principal-agent model to support resource allocation, and then uses it to analyze commonly observed risk-aversion contracting between a FG customer (principal) and a localized 3PL logistics supplier (agent) with cooperative game combinations by fixed payment, cost-sharing incentive, as well as a performance incentive conditions. Finally, a real military logistics service application in Taiwan is demonstrated by the assessment model to generate the maximum utilities while under cost-sharing incentive condition by using offset obligation between FG and OEM.

Medicare's Increasing Focus on Prevention and Wellness Services Should Garner Greater Attention by Health Care Practitioners and Communities

Since 2011, the Affordable Care Act (ACA) requires the provision of certain recommended clinical preventive services without cost-sharing for individuals in Medicare. We re-visited the effects of the ACA on preventive services utilization under Medicare, using data from the Medical Expenditure Panel Survey (MEPS) and examined the ACA's longer-term effects on preventive services utilization among Medicare beneficiaries. We analyzed nationally representative data on non-institutionalized Medicare beneficiaries (n = 27,124) from the 2006–2010 and 2012–2016 Medical Expenditure Panel Survey. Preventive services of interest were cholesterol test, blood pressure test, flu shot, endoscopy, blood stool test, clinical breast exam, mammography and prostate exam. We estimated propensity score weighted difference-in-difference (DID) models to test for differences in preventive services utilization based on Medicare insurance status. Nationwide, among beneficiaries with traditional Medicare only, who stood to gain the most from eliminating cost-sharing for preventive services, the percentage of women receiving clinical breast exams rose post-reform (Δ = 8.1%; p < 0.015) as compared to Medicare beneficiaries with supplemental private coverage, while at the same time the percentage receiving other preventive services did not change post-reform (all p > 0.05). Based on this analysis of MEPS data spanning 2006–2016, the ACA's enhancement of Medicare coverage had only modest effects on the percentage of beneficiaries receiving a range of preventive services. Medicare beneficiaries should be better informed of the availability of these services and encouraged by their physicians to avail the no cost-sharing incentive of these reforms.

Analysis of nonformulary use of PPIs and excess drug cost in a Veterans Affairs population.

In the Veterans Affairs (VA) health care system, a formulary-based approach without beneficiary cost-share incentives is used to limit the pharmacy cost of proton pump inhibitors (PPIs). However, the effectiveness of this approach in reducing the cost of PPIs is unknown. To (a) compare cost differences between the formulary PPI (generic omeprazole) and nonformulary PPIs and (b) evaluate reasons for nonformulary PPI use in order to identify opportunities to increase formulary drug use and discourage unnecessary use of nonformulary PPIs. A list of patients with receipt of PPIs from July 1, 2008, through June 30, 2009, was obtained from the Loma Linda VA Healthcare System pharmacy. Subjects with receipt of at least 120 units (capsules or tablets) of any PPI in the study period were considered long-term users. Demographic information was collected. Pharmacy consult records were reviewed to identify reasons for nonformulary use and dosing regimen of the formulary PPI prior to the switch. Cost analysis was done based on the VA contract prices for the drugs at the time of the study. Of 58,605 unique patients seen in this VA health care system in the 12-month period from July 1, 2008, through June 30, 2009, 13,713 (23.4%) received a PPI, and of these, 10,483 (76.4%) received at least 120 PPI units and were defined as long-term users. Of the long-term users, 9,462 (90.3%) were on the formulary PPI generic omeprazole, and 1,021 were nonformulary PPI users. Use of nonformulary PPIs (esomeprazole, pantoprazole, lansoprazole, rabeprazole) accounted for 10.5% of the PPI units and 9.7% of the users but 57.3% of total PPI cost. This pattern resulted in $570,263 in excess spending (i.e., $570,263 would have been saved in the study period if the nonformulary PPI users had used the formulary drug). The most common reason for nonformulary long-term PPI use was persistent symptoms (n=901, 88.2%). Adverse reaction was cited by 111 (10.9%) of nonformulary PPI users, 33.3% (n=37) of whom reported diarrhea. Of those who switched to a nonformulary PPI due to persistent symptoms, 363 (40.3%) were on once-daily dosing prior to the switch; 379 (42.1%) were on twice-daily dosing; and 159 (17.6%) were transfers from other places in which prior dosing information was not available in the hospital pharmacy records. One-year PPI use prevalence was 23% in this VA population, and long-term use prevalence was 18%. Nonformulary PPI use accounted for 10.5% of the PPI units and 9.7% of the users but 57.3% of total PPI drug cost. Opportunities to reduce nonformulary PPI use in order to reduce overall expenditures on PPIs include verification of optimal formulary PPI use, titration to twice-daily dosing, and confirmation of adverse reaction as being attributable to PPI use.

Family Forest Owners' Perceptions on Chemical Methods for Invasive Species Control

AbstractFocus group methodology in a field demonstration setting was used to obtain qualitative data on the perceptions of family forest owners relating to treatment efficiency and feasibility of herbicide control methods. Interviews took place on sites where various strategic herbicide treatments were implemented for Chinese privet (Ligustrum sinense) control using the active ingredients glyphosate and metsulfuron. Forest owners expressed unease about the possibility for post-treatment privet reestablishment due to reseeding or other factors and opinions surfaced calling for selective chemicals or application methods that would spare non-target species. Furthermore, treatment cost effectiveness with regard to timber value, the possible need for expensive multiple treatments, cost-share incentives, and treatment guarantees from herbicide applicators were participant concerns. Environmental concerns surfaced about possible effects of both herbicide use and the invasion of privet on natural systems and an unexpected result was a strong feeling among the forest owners that focus groups are a powerful demonstration tool.

Performance Contracting in After-Sales Service Supply Chains

Performance-based contracting is reshaping service support supply chains in capital-intensive industries such as aerospace and defense. Known as “power by the hour” in the private sector and as “performance-based logistics” (PBL) in defense contracting, it aims to replace traditionally used fixed-price and cost-plus contracts to improve product availability and reduce the cost of ownership by tying a supplier's compensation to the output value of the product generated by the customer (buyer). To analyze implications of performance-based relationships, we introduce a multitask principal-agent model to support resource allocation and use it to analyze commonly observed contracts. In our model the customer (principal) faces a product availability requirement for the “uptime” of the end product. The customer then offers contracts contingent on availability to n suppliers (agents) of the key subsystems used in the product, who in turn exert cost reduction efforts and set spare-parts inventory investment levels. We show that the first-best solution can be achieved if channel members are risk neutral. When channel members are risk averse, we find that the second-best contract combines a fixed payment, a cost-sharing incentive, and a performance incentive. Furthermore, we study how these contracts evolve over the product deployment life cycle as uncertainty in support cost changes. Finally, we illustrate the application of our model to a problem based on aircraft maintenance data and show how the allocation of performance requirements and contractual terms change under various environmental assumptions.

Harnessing nature to improve sustainability

Harnessing nature to improve sustainability

The association of consumer cost-sharing and direct-to-consumer advertising with prescription drug use ☆

Background Previous research on the impact of various cost-sharing strategies on prescription drug use has not considered the impact of direct-to-consumer (DTC) advertising. Objective To explore the association of cost-containment strategies with prescription drug use and to determine if the association is moderated by DTC prescription drug advertising. Methods The study population included 288 280 employees and dependents aged 18 to 65 years with employer-sponsored health insurance contributing to the MEDSTAT MarketScan administrative data set. Person-level enrollment and claims data were obtained for beneficiaries enrolled continuously during July 1997 through December 1998. Direct-to-consumer advertising data were obtained from Competitive Media Reporting and linked to the MEDSTAT enrollment files. Localized DTC advertising expenditures for one class of medication were evaluated and matched with prescription claims for eligible MEDSTAT contributors. The association of various types and levels of cost-sharing incentives with incident product use was evaluated, controlling for the level of DTC advertising, health status, and other demographic covariates. Results The relationship of cost-sharing amounts with drug use was modified by the level of DTC advertising in a geographic market. This relationship was dependent on the type of cost-sharing, distinguishing between co-payments for provider visits and co-payments for prescription drugs. Compared with low-advertising markets, individuals residing in markets with high levels of advertising and paying provider co-payments of $10.00 or more were more likely to use the advertised product. In the same markets, higher prescription drug co-payments were associated with a decreased likelihood of using the advertised product. A similar relationship was not observed for the nonadvertised competitor. Conclusions Among insured individuals, response to cost-sharing strategies is moderated by DTC prescription drug advertising. The relative ability of cost-sharing strategies to influence drug use should be interpreted with caution in the presence of DTC advertising.

Determinants of Timberland Use by Ownership and Forest Type in Alabama and Georgia

Land use changes and timberland use by ownership and forest type in Alabama and Georgia between 1972 and 2000 are analyzed using a modified multinomial logit approach. Low average land quality, federal cost-share incentives, and favorable returns to forestry relative to agriculture were the main factors associated with timberland increase. Higher forestry returns helped increase industrial timberland but not nonindustrial private forests. An increase in hardwood forests at the expense of softwood and mixed forests was driven by increasing hardwood returns. Increasing softwood returns and tree planting assistance programs alleviated declines in softwood forests. Because factors influencing timberland use changes differ by ownership and forest type, treating all timberland as one major category may lead to incorrect predictions.

Measuring Hospital Cost-Sharing Incentives Under Refined Prospective Payment

This paper evaluates the usefulness of a model (McClellan, 1997) that was recently proposed for measuring reimbursement incentives under ongoing refinements to the hospital prospective payment system. The model is applied to a single major disease category (HIV infection) for which the hospital reimbursement system has undergone dramatic refinements in recent years. The paper highlights a problem in the original specification, namely, the use of endogenous costs as an explanatory variable. The paper illustrates how hospital response to both marginal price incentives (e.g., a change in the supply of payment-related services) and average price incentives (e.g., a change in the supply of non-payment-related services) can cause either over-or underestimation of payer cost sharing. In the present case study, overestimation of the marginal reimbursement incentives was evidenced. Obtaining cost-sharing estimates that can be used to evaluate alternative payment classification systems requires controlling for endogenous changes in hospital behavior.

Measuring Hospital Cost-Sharing Incentives under Refined Prospective Payment

Measuring Hospital Cost-Sharing Incentives under Refined Prospective Payment