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Do Financial Incentives Alter Physician Prescription Behavior? Evidence from Random Patient-GP Allocations

Alexander Ahammer () and Ivan Zilic ()

No 1701, Working Papers from The Institute of Economics, Zagreb

Abstract: Do physicians respond to financial incentives? We address this question by an- alyzing the prescription behavior of physicians who are allowed to dispense drugs themselves through onsite pharmacies. Using administrative data comprising over 16 million drug prescriptions between 2008 and 2012 in Upper Austria, a naïve com- parison of raw figures reveals that self-dispensing GPs induce 33.2% higher drug expenses than others. Our identification strategy rests on multiple pillars. First, we use an extensive array of covariates along with multi-dimensional fixed effects which account for patient and GP-level heterogeneity as well as sorting of GPs into onsite pharmacies. Second, we use a novel approach that allows us to restrict our sam- ple to randomly allocated patient-GP matches which rules out endogenous sorting as well as principal-agent bargaining over prescriptions between patients and GPs. Contrary to our descriptive analysis, we find evidence that onsite pharmacies have a small negative effect on prescriptions. Although self-dispensing GPs seem to pre- scribe slightly more expensive medication, this effect is absorbed by a much smaller likelihood to prescribe in the first place, causing the overall effect to be negative.

Keywords: physician dispensing; drug expenses; physician agency; moral hazard (search for similar items in EconPapers)
JEL-codes: I11 I12 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eur and nep-hea
Date: 2017-04
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