Separation of prescription and treatment in health care markets

a laboratory experiment

Ben Greiner*, Le Zhang, Chengxiang Tang

*Corresponding author for this work

Research output: Contribution to journalArticle

1 Citation (Scopus)

Abstract

Health care is a credence good, and its market is plagued by asymmetric information. In this paper, we use a laboratory experiment to test the performance of a potential remedy discussed in the applied literature, the separation of prescription and treatment activities. We observe a significant amount of overtreatment (and a smaller nonpredicted amount of undertreatment) in our baseline environment. Requiring a different than the treating physician to provide diagnosis and prescription for free is an effective way to reduce overtreatment in our laboratory setting. This effect, however, is partially offset by an increased frequency of undertreatment. Allowing prescription and treatment physicians to independently set prices for their services reduces efficiency due to coordination failures: In sum, prices are often higher than expected benefit of patients, who in turn do not attend to the physician. Also contrary to theory, bargaining power does not play a significant role for the distribution of profits between physicians.

Original languageEnglish
Pages (from-to)21-35
Number of pages15
JournalHealth Economics (United Kingdom)
Volume26
Issue numberS3
DOIs
Publication statusPublished - Dec 2017

Keywords

  • credence goods
  • health care
  • overtreatment
  • separation of prescribing and dispensing

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