IDEAS home Printed from https://ideas.repec.org/p/zbw/vfsc16/145594.html
   My bibliography  Save this paper

Kickbacks in Medical Expert Markets

Author

Listed:
  • Felder, Stefan

Abstract

This paper examines patient and overall welfare effects of kickbacks paid by a monopolistic hos-pital to competitive physicians in return for patient referrals. This practice is regarded as unethical and illegal in most cases. On the other hand, kickbacks can also enhance the distribution of labor in the production of medical services. In the context of medical services modelled as credence goods where patients need one of two possible treatments (minor or major), it is shown that pa-tient welfare is always lower with kickbacks than without. When the use of kickbacks is allowed, an equilibrium with overcharging (the patient requires the minor treatment but is charged for the expensive one) and one with overtreatment (the patient receives but does not require the major treatment) are possible. The latter results if patients can verify the treatment but not the diagno-sis, the former arises when no verifiability applies. Overall welfare is lowest in the equilibrium with overtreatment. Overcharging does not necessarily reduce overall welfare, as it depends on the degree of altruism among referring physicians. If they are solely extrinsically motivated, al-lowing kickbacks increases overall welfare. If physicians behave altruistically, a tradeoff arises between resource savings and guilt disutility from referrals. Additional equilibria emerge if the hospital can differentiate prices and post its own price for inexpensive treatments. Kickbacks continue to be predicted if physicians are not overly altruistic and no or only partial verifiability applies. In these cases, a prohibition of kickbacks improves the allocation. Kickbacks disappear, however, if treatment and diagnosis are verifiable, or if the hospital market is competitive.

Suggested Citation

  • Felder, Stefan, 2016. "Kickbacks in Medical Expert Markets," VfS Annual Conference 2016 (Augsburg): Demographic Change 145594, Verein für Socialpolitik / German Economic Association.
  • Handle: RePEc:zbw:vfsc16:145594
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/145594/1/VfS_2016_pid_6466.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Mark V. Pauly, 1979. "The Ethics and Economics of Kickbacks and Fee Splitting," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 344-352, Spring.
    2. A. J. Culyer & J. P. Newhouse (ed.), 2000. "Handbook of Health Economics," Handbook of Health Economics, Elsevier, edition 1, volume 1, number 1.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Blomqvist, Ake & Leger, Pierre Thomas, 2005. "Information asymmetry, insurance, and the decision to hospitalize," Journal of Health Economics, Elsevier, vol. 24(4), pages 775-793, July.
    2. Joan Costa-Fonta & Montserrat Font-Vilalta, "undated". "The limits on the Design of Long-Term Care Insurance Schemes in Spain stas," Studies on the Spanish Economy 201, FEDEA.
    3. Arbatskaya, Maria & Konishi, Hideo, 2012. "Referrals in search markets," International Journal of Industrial Organization, Elsevier, vol. 30(1), pages 89-101.
    4. Grönqvist, Hans & Niknami, Susan, 2014. "Alcohol availability and crime: Lessons from liberalized weekend sales restrictions," Journal of Urban Economics, Elsevier, vol. 81(C), pages 77-84.
    5. Baltagi, Badi H. & Yen, Yin-Fang, 2014. "Hospital treatment rates and spillover effects: Does ownership matter?," Regional Science and Urban Economics, Elsevier, vol. 49(C), pages 193-202.
    6. G�ng�r KARAKAYA, 2009. "Long-Term Care: Regional Disparities In Belgium," Journal of Applied Economic Sciences, Spiru Haret University, Faculty of Financial Management and Accounting Craiova, vol. 4(1(7)_ Spr).
    7. Kai Hong & Peter A. Savelyev & Kegon T. K. Tan, 2020. "Understanding the Mechanisms Linking College Education with Longevity," Journal of Human Capital, University of Chicago Press, vol. 14(3), pages 371-400.
    8. David Cantarero & Marta Pascual, 2005. "Regional Differences In Health In Spain - An Empirical Analysis," ERSA conference papers ersa05p551, European Regional Science Association.
    9. Nell, Martin & Rosenbrock, Stephan, 2007. "Wettbewerb in kapitalgedeckten Krankenversicherungssystemen: Ein konsistenter Ansatz zur Übertragung von individuellen Alterungsrückstellungen in der Privaten Krankenversicherung," Working Papers on Risk and Insurance 19, University of Hamburg, Institute for Risk and Insurance.
    10. Natallia Gray & Gabriel Picone, 2018. "Evidence of Large-Scale Social Interactions in Mammography in the United States," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 46(4), pages 441-457, December.
    11. Caroline S. Carlin & Roger Feldman & Bryan Dowd, 2016. "The Impact of Hospital Acquisition of Physician Practices on Referral Patterns," Health Economics, John Wiley & Sons, Ltd., vol. 25(4), pages 439-454, April.
    12. Erik Schokkaert & Jonas Steel & Carine Van de Voorde, 2017. "Out-of-Pocket Payments and Subjective Unmet Need of Healthcare," Applied Health Economics and Health Policy, Springer, vol. 15(5), pages 545-555, October.
    13. Masayoshi Hayashi, 2011. "The effects of medical factors on transfer deficits in Public Assistance in Japan: a quantile regression analysis," International Journal of Health Economics and Management, Springer, vol. 11(4), pages 287-307, December.
    14. Øien Henning, 2013. "Do Local Governments Respond to (Perverse) Financial Incentives in Long-Term Care Funding Schemes?," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 14(2), pages 525-549, August.
    15. Majo, Maria Cristina & van Soest, Arthur, 2012. "Income and health care utilization among the 50+ in Europe and the US," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 28(4), pages 3-22.
    16. James M. Malcomson, 2005. "Supplier Discretion Over Provision: Theory and an Application to Medical Care," RAND Journal of Economics, The RAND Corporation, vol. 36(2), pages 412-429, Summer.
    17. Anikó Bíró, 2014. "Supplementary private health insurance and health care utilization of people aged 50+," Empirical Economics, Springer, vol. 46(2), pages 501-524, March.
    18. Abe Dunn & Eli Liebman & Adam Hale Shapiro, 2016. "Decomposing Medical Care Expenditure Growth," NBER Chapters, in: Measuring and Modeling Health Care Costs, pages 81-111, National Bureau of Economic Research, Inc.
    19. Martin Gaynor, "undated". "What Do We Know About Competition and Quality in Health Care Markets?," GSIA Working Papers 2006-E62, Carnegie Mellon University, Tepper School of Business.
    20. Tim Lohse & Peter Lutz & Christian Thomann, 2013. "Redistributional consequences of early childhood intervention," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 14(3), pages 373-381, June.

    More about this item

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zbw:vfsc16:145594. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ZBW - Leibniz Information Centre for Economics (email available below). General contact details of provider: https://edirc.repec.org/data/vfsocea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.