Managerial Economics & Organizational Architecture 6th Edition by James Brickley , Clifford Smith ,Jerold Zimmerman

Exercise 15

Blue Cross Blue Shield of Rochester is Rochester's largest health insurance provider. In exchange for the insurance premiums they pay, families insured by BCBS receive all their health care needs from a group of approximately 500 doctors approved by BCBS. (Families must choose their doctors from among these 500 doctors.)
When a patient insured by BCBS visits a doctor for a consultation, the patient pays a small copayment (usually $10). The doctor is reimbursed for the difference between the cost of the consultation and the copayment by RCIPA Corp. RCIPA Corp. is a firm owned by the 500 doctors who are BCBS-approved. At the beginning of each fiscal year, BCBS and RCIPA agree on a total dollar amount that BCBS will pay to RCIPA for medical services provided to patients covered by BCBS. BCBS further agrees that this dollar amount will not be adjusted for higher- or lower-than-expected medical care required by BCBS patients. RCIPA in turn pays member doctors, based on a fee schedule, for the medical services they provide to BCBS-insured patients. If, at the end of the year, there is any money left over, it is distributed to RCIPA members. If there is not enough money to pay for all the services provided by the member doctors, then the shortfall is allocated among the member doctors who must contribute cash to make up the shortfall.
Why do you think RCIPA serves as an intermediary between BCBS and the doctors who care for BCBS's clients Why would BCBS risk paying "too much" for the medical care of their customers Why would RCIPA and its members risk being "underpaid" for their services Is one of the two parties forcing the other to agree to such an arrangement If so, who is forcing whom Why