Do physicians care about patients’ utility?
HERO WP 2019/2: Ge Ge, Geir Godager, Jian Wang
Out-of-pocket spending by patients is a substantial share of aggregate health expenditures in many countries, and the level of demand-side cost sharing is a distinguishing feature of health insurance contracts. Medical decisions affect a patient's well-being in two different ways in the case of demand-side cost sharing, as health status and consumption opportunities are both affected. It is desirable for a patient to receive treatment recommendations from a physician who cares about patient well-being. Professional norms and pro-social preferences are therefore key elements that shape markets for medical care. If physicians are concerned about the overall well-being of their patients, they would, ceteris paribus, prefer treatment alternatives where reductions in patients' consumption are smaller. We ask whether the physician's treatment choices are affected by demand-side cost sharing. In order to identify and quantify preferences under demand-side cost sharing, we design and conduct an incentivized laboratory experiment where only medical students are recruited to participate. In our experiment we achieve saliency of all three attributes of treatment alternatives, profit, health benefit and patient consumption: The choices in the laboratory experiment determine the amount of medical treatment and the future consumption level of a real patient admitted to the nearest hospital. In our experiment we vary demand-side cost sharing while preferences and bargaining power of the patient is fixed. We estimate decision-makers' preference parameters in a variety of random utility models. We find strong evidence suggesting that the amount of demand-side cost sharing affects medical decisions.
Keywords: Physian preferenes, Demand-side cost sharing, Incentivized laboratory experiment