Contracting for Health Services with Unmonitored Quality

In both the NHS and Medicare, recent emphasis has been on contracts with payment based only on the number of patients treated. It is shown that, without direct monitoring of quality or effort to reduce costs, such contracts are efficient only when it is efficient to treat all patients wanting treatment. It may not be when treatment costs are insured or subsidised. Such contracts can then be improved by including payments for the number of patients wanting treatment, as well as for the number actually treated. Even then, the outcome will not generally be efficient if quality is multi-dimensional.