In most health care systems, doctors act as gatekeepers to patients requiring “referred” services such as pharmaceuticals, tests and procedures. With the rising costs of such services, many third-party purchasers of health care are focussing on this gate keeping role of doctors.
Many purchasers have introduced supply-side cost sharing which imposes financial penalties on doctors for utilizing referred services, with the objective of limiting the utilization of referred services to patients for whom the benefit will outweigh the cost. Although imposing such schemes may result in more cost effective use of referred services, it also creates a potential agency problem for the
patient.
Doctors whose interests were previously aligned with the patient’s interest, now become a common agent of the purchaser and the patient. Patients may respond to this by exerting pressure on doctors, a possibility that is especially apparent in transitional and developed country settings. As Ensor (2000) observes, the growing popularity of informal side-payments paid by patients to doctors in transitional economies may distort the intent of health reform and the purchaser confronts the possibility that patient-doctor collusion may undermine supply-side incentives. Designing effective incentives on suppliers within such an environment is clearly far more complicated than in situations where such collusion is excluded by social norms or effective monitoring.
When physicians are allowed to balance-bill, the side-payments between doctors and patients are not strictly bribes but legitimate fees. However, even in these cases, supply-side incentives may be distorted, since balance billing provides a mechanism where by the patient can re-direct the doctor’s incentives. We therefore argue that the concern over patient-doctor collusion exists whenever there is a formal or informal mechanism whereby patients and doctors can exploit mutually beneficial opportunities.
There is now a substantial body of literature in health economics on the design of optimal supply-side and demand-side cost sharing rules by a third-party purchaser interested in implementing “cost-effective” quality levels in an environment in which patients do not face the full cost of their medical care.
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