A study of income-motivated behavior among general practitioners
- Presenter:
Chair: Melayne McInnes; Discussant: Melayne McInnes Wed June 7, 2006 9:45-11:15 Room 226
Background: Regulated fee-for-service payment is likely to result in excessive number of services under monopolistic competition in the physician market. On the other hand, pure capitation payment is likely to result in underprovision of services. Hence, optimal payment systems for physicians are likely to be a mix of several components. We study the effect of a mixed capitation and fee-for-service system on the amount of services provided by physicians. In particular, we study to what extent the variation in service intensity among general practitioners (GPs) may be explained by an observation that some physicians have fewer regular patients than they would like to have (they experience a shortage of patients), combined with fee-for-service payment. If physicians, who experience a patient shortage, increase their intensity of service provision as a means to increase their income, we call it income-motivated behavior.
Theory: By means of non-linear programming a GP’s optimal practice style (described by the length of his list of patients and the level of service intensity) is derived under a mix of capitation and fee for service. We find that a GP, who experiences a shortage of patients, is likely to increase the number of services he provides to his patients if the marginal utility of leisure is less than the marginal utility of income from the extra services.
Empirical strategy: The sample consists of all GPs (3650) in the nationwide list patient system in Norway. Panel data at the level of individual GPs are available for the period 2001-2004. With panel data, unobserved heterogeneity is likely to occur. The assumptions of ordinary least squares regression are then violated since errors terms of different periods are correlated. We also suspect that patient shortage is not a random event. Unobserved heterogeneity is handled by generalized least squares estimation. Self selection is adjusted for by means of a Difference-in-differences estimator.
Results: We find that patient shortage increases a GP’s intensity of service provision (in particular the length of each visit) and hence, the income per listed person with 10 - 15 per cent. We also find that a GP’s income per listed person is influenced by the composition of the list according to indicators of need for services, and of accessibility according to the GP density in the municipality. These results are also valid when possible selection bias is accounted for, although the magnitude of the effects is then somewhat smaller.
Conclusion: Patient shortage is costly to the insurer because of income-motivated behavior related to the fee-for-service component of the payment system. An alternative would be to drop the fee-for-service component and let the payment system be based on the capitation fee only. But under capitation payment (with imperfect risk adjustment) not all patients are equally attractive because of variation in need for services. The present study may therefore demonstrate the classical trade off between selection and inefficiency in health care. We roughly calculate the cost of avoiding patient selection to be 3.3 % of total fee-for-service paid by the National Insurance.
