Sticking points: common-agency problems and contracting in the US healthcare system

We propose a “common-agency” model for explaining inefficient contracting in the US healthcare system. Common-agency problems arise when multiple payers seek to motivate a provider to invest in improved care coordination. We highlight the possibility of “sticking points,” that is, Pareto-dominated equilibria in which payers coordinate around contracts which give weak incentives to the provider. Sticking points rationalize three hard-to-explain features of the US healthcare system: widespread fee-for-service arrangements; problematic care coordination; and the historical reliance on single-specialty practices to deliver care. The model also analyzes the effects of policies promoting more efficient contracting between payers and providers.