Should physicians' dual practice be limited? An incentive approach

Abstract

We develop a principal-agent model to analyze how the behavior of a physician in the public sector is affected by his activities in the private sector. We show that the physician will have incentives to over-provide medical services when he uses his public activity as a way of increasing his prestige as a private doctor. The health authority only benefits from the physician's dual practice when it is interested in ensuring a very accurate treatment for the patient. Our analysis provides a theoretical framework in which some actual policies implemented to regulate physicians' dual practice can be addressed. In particular, we focus on the possibility that the health authority offers exclusive contracts to physicians and on the implications of limiting physicians' private earnings.

A theoretical approach to dual practice regulations in the health sector

“…For this purpose, we consider two alternative technologies F (a) for the production of health in the public sector. 15 Developed countries benefit from widespread use of advanced technologies and test-based diagnoses, as well as rigorous training processes, standardized treatments and protocols, and strict adherence to practice guidelines. Moreover, the large size of public facilities facilitates the referral of patients to specialists and the formation of teams of physicians who share information and discuss especially difficult cases.…”

“…Moreover, the large size of public facilities facilitates the referral of patients to specialists and the formation of teams of physicians who share information and discuss especially difficult cases. All these features point towards a lower degree of physician discretion and hence 15 Although throughout the paper we consider the access to different technologies as the identifying feature of developed and developing countries, we thank an anonymous referee for raising two issues that are also relevant for our discussion. First, within a given health care system, different specialties may have access to different technologies, what would call for a more speciality-specific dual practice regulation.…”

Public versus private health care in a national health service

“…Hence, the public sector has by assumption served those consumers with the highest willingness to pay for health care. 11 Those not served by the public sector will have 9 McGuire (1986, 1990) have considered how the reimbursement scheme a¤ects the supply of health services, while Ma (1994) and Sharma (1998) have investigated how it a¤ects quality as well as the incentives for reducing costs. For a survey of the literature, see Newhouse (1996) or Ennis (1998).…”

Restricting private-sector practice using contracts

“…For example, the Spanish government offers salary supplements to physicians who sign restrictive contracts. 15 In Portugal, there are four categories of contract, and remuneration rises with increased time commitment to the public system. 16 In Italy, only physicians who sign exclusive public contracts are eligible for promotion.…”