Kickbacks, referrals and efficiency in health care markets: Experimental evidence
HERO WP 2016/8: Authors: Christian Waibel, Department of Management, Technology and Economics, ETH Zurich, Switzerland and Daniel Wiesen, Department of Health Management and Health Economics, Institute of Health and Society, University of Oslo & Department of Business, Administration and Healthcare Management, University of Cologne, Germany.
We analyse the causal effect of kickbacks (referral payments) on general practitioners' behaviours and efficiency. In a stylized model, we derive behavioural predictions for general practitioners' diagnostic efforts and referrals to secondary care (specialized physicians), which we test in a series of controlled laboratory experiments. We exogenously vary the level of regulated referral payments in our experimental treatments. We find that introducing referral payments significantly improves efficiency. An increase in payments leads to less undertreatment of severely ill patients, but also to more unnecessary referrals of mildly ill patients. The net effect is positive, as the former outweighs the latter. Interestingly, the increase in efficiency is mainly driven by behavioural changes of barely altruistic general practitioners.
JEL classification: I11, D47, C91
Keywords: Kickback, referral payment, diagnostic effort, referrals, altruism, efficiency, laboratory experiment