| Summary: | Approved for public release; distribution is unlimited. === Rising health care costs are essentially rooted in a health care system based upon adverse economic incentives, which encourage both providers and patients to act with little regard to costs. To effectively control demand and utilization of health services, and thus costs, a health care system should be structured to provide incentives which motivate all participants to seek cost-effective care. This study examines the theory and reviews the influence of financial incentives upon patient demand behavior. Utilization data from the CHAMPUS Reform Initiative (CRI) are analyzed in terms of the CRI program incentive structures in order to draw conclusions regarding the influence of incentives upon beneficiary demand behavior. Based upon the CRI analysis and descriptions of financial incentive-based models of demand behavior as described in the literature, suggestions for DOD health care reform are offered.
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