Informal payments and patients’ perceptions of the physician agency problem: Evidence from rural China

Informal payment for medical services is a common phenomenon in China. Patients make informal payments, in cash or in kind, to physicians in addition to official charges billed for medical services. This paper assesses the associations between patients' perceptions of the physician as an agent for the patient's interests (physician agency problem) and informal payment behavior. Using data of 24,000 and 6700 rural households respectively from the Health Development of Rural China Program database (collected in 2008) and Ningxia data source (collected in 2015), we find that patients' concern about physician agency problems is significantly associated with informal payments. The data shows that patients are more likely to make informal payments when they show low trust towards their physicians. For example, in the surgical cases, among patients who strongly distrusted the physicians, 17.9% (95% confidence interval [CI]:]: 13.5, 22.3) initiated informal payments, compared to 8.0% (95% CI: 5.1, 10.9) who expressed “strong trust” in their physicians. Poor communication was also significantly associated with an increase in the informal payment rate. For example, in the non-surgical setting, among the patients who rated the physicians' explaining skills as “poor,” 5.9% (95% CI: 5.0, 6.9) of them made informal payments, significantly higher than the patients who rated “excellent” (of whom 1.8% made informal payments 95% CI, 0.9, 2.7). In this study, we provide an explanation for this finding: patients may initiate informal payments to physicians in order to mitigate the physician agency problem. It suggests that to mitigate informal payments, improving alignment between doctors' incentives and patients' interests would be essential.