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Financial incentives and physician prescription behavior: Evidence from dispensing regulations

Author

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  • Daniel Burkhard
  • Christian Schmid
  • Kaspar W thrich
Abstract
In many healthcare markets, physicians can influence the volume (volume response) and the composition of the services provided (substitution response). The goal and main contribution of this paper is to empirically assess the relative importance of these two behavioral channels. Our analysis is based on the market for ambulatory care in Switzerland in which different drug dispensing regimes (banned/allowed) co-exist at the regional level but many important other features are regulated at the federal level. Dispensing creates financial incentives for physicians to sell more drugs and to substitute towards more expensive drugs thus providing an ideal setup for our empirical analysis. We combine the regional variation in the dispensing regime with comprehensive physician-level prescription data to empirically disentangle the volume and the substitution response. The estimated average effects suggest that physician dispensing increases drug costs on the order of 25% for general practitioners and 15% for medical specialists. A decomposition of this overall effect indicates that the cost increase can mainly be attributed to a volume increase, while average drug prices are not or even negatively affected in some specifications. In addition, we document substantial effect heterogeneity along the outcome distributions.

Suggested Citation

  • Daniel Burkhard & Christian Schmid & Kaspar W thrich, 2015. "Financial incentives and physician prescription behavior: Evidence from dispensing regulations," Diskussionsschriften dp1511, Universitaet Bern, Departement Volkswirtschaft.
    • Handle: RePEc:ube:dpvwib:dp1511
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    Cited by:

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    2. Alexander Ahammer & Ivan Zilic, 2017. "Do Financial Incentives Alter Physician Prescription Behavior? Evidence from Random Patient-GP Allocations," Working Papers 1701, The Institute of Economics, Zagreb.
    3. Rachamin, Yael & Meier, Rahel & Valeri, Fabio & Rosemann, Thomas & Muheim, Leander, 2021. "Physician-dispensing as a determinant of clinical and process measurements in patients at increased cardiovascular risk: A cross-sectional study in Swiss general practice," Health Policy, Elsevier, vol. 125(10), pages 1305-1310.
    4. Fabienne Loetscher, Christian P.R. Schmid, Michael Gerfin, "undated". "The effect of higher out-of-pocket payments on drug prices and demand," Diskussionsschriften dp2405, Universitaet Bern, Departement Volkswirtschaft.
    5. Hjalmarsson, Linn & Schmid, Christian P.R. & Schreiner, Nicolas, 2024. "A Prescription for Knowledge: Patient Information and Generic Substitution," Working papers 2024/05, Faculty of Business and Economics - University of Basel.
    6. Müller, Tobias & Schmid, Christian & Gerfin, Michael, 2023. "Rents for Pills: Financial incentives and physician behavior," Journal of Health Economics, Elsevier, vol. 87(C).
    7. Peter Zweifel, 2022. "Preference measurement in health using experiments," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 30(1), pages 49-66, March.
    8. Meng‐Chi Tang, 2023. "A structural analysis of physician agency and pharmaceutical demand," Health Economics, John Wiley & Sons, Ltd., vol. 32(7), pages 1453-1477, July.
    9. Boris Kaiser, 2017. "Gender-specific practice styles and ambulatory health care expenditures," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 18(9), pages 1157-1179, December.
    10. Stacherl, Barbara & Renner, Anna-Theresa & Weber, Daniela, 2023. "Financial incentives and antibiotic prescribing patterns: Evidence from dispensing physicians in a public healthcare system," Social Science & Medicine, Elsevier, vol. 321(C).

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    More about this item

    Keywords

    physician agency; drug expenditures; volume response; substitution response; physician dispensing;
    All these keywords.

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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