Rents for Pills: Financial incentives and physician behavior

Tobias Müller, Christian Schmid and Michael Gerfin

Journal of Health Economics, 2023, vol. 87, issue C

Abstract: We study the impact of financial incentives on the prescription behavior of physicians based on a recent reform in two large Swiss cities. The reform opened up an additional income channel for physician by allowing them to earn a markup on drugs they prescribe to their patients. We find that the reform leads to an increase in drug costs by about 4%–5% per patient translating to significantly higher physician earnings. The revenue increase can be decomposed into a substitution and rent-seeking component. Our analysis indicates that physicians engage in rent-seeking by substituting larger with smaller packages and by cherry-picking more profitable brands. Although patient health is not sacrificed, the rent-seeking behavior results in unnecessary costs for society.

Keywords: Financial incentives; Rent-seeking; Prescription behavior; Health spending (search for similar items in EconPapers)
JEL-codes: C21 D01 I11 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jhecon:v:87:y:2023:i:c:s0167629622001254

DOI: 10.1016/j.jhealeco.2022.102711

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