Beruflich Dokumente
Kultur Dokumente
North-Holland
This paper is concerned with the application of the theory of agency to health care. it is argued
that the basic theory of agency raises more questions than it provides answers when it is applied
to the doctor-patient relationship. More research is needed into the nature of both the patients
and the doctors utility functions. Only then can we begin to devise optimal incentive structures
to encourage doctors to take adequate account of patient preferences.
I. Introduction
Many economists have argued that the assumption of consumer sover-
eignty does not apply in the market for health care because of the asymmetry
of information between the patient and the doctor. The doctor-patient
relationship has thus frequently been modelled within the theory of agency,
with consideration of the associated incentive problems.
While the concept of the agency relationship has become widely accepted
in health economics, there appears to be some lack of agreement about its
precise role, how it operates and how it might be made to operate better.
This may reflect the fact that, whilst economists have analysed the standard
theory of agency in great detail (as is evidenced by the considerable literature
in this area), agency in health care has to date been used primarily as no
more than a description of behaviour. That is, there is comparatively little
analytical work on it in health care.
Whilst the standard theory of agency, as it is applied to any market
characterised by an asymmetry of information [MacDonald (1984)], assumes
that the principals and agents utility functions are independent, in health
care it has been recognised that the doctors 7,:jd patients utility functions
are, to a certain extent, interdependent [Evans (l984)].
outside health care the standard theory of agency has concentrated on
devising optimal fee schedules, with complicated fee structures that are
related to the outcome being predicted. However, such complicated fee
schedules have not emerged in health care, and current methods of paying
doctors appear highly simplistic when compared to the predictions of agency
theory. Research in the area remains lim ted (see [Donaldson and Gerard
(1989), Krasnik et al. (1990)] and it is not surprising that health economists
do not agree on optimal methods of remuneration for doctors.
The purpose of this paper is to examine the principal-agent relationship in
mainstream micro-economics with a view to identifying more precisely its
relevance and transferability to health care. It is argued that, given the
interdependence of the principal and agents utility functions in health cart,
transferability is dependent on identifying the nature of these utility func-
tions. Leading on from this, the paper highlights the need to see remune-
ration systems BS a mechanism for influencing doctors to identify more
accurately what is in the patients utility function and to act on that
information.
such dixnrl-+s provide a mechanism which enables both insurer and insured to
counteract the inefkiency which arises from moral hazard.
Coyte (1984) argued that the market for health care is like any other
market characterised by an asymmetry of information. and that patients can
monitor doctors behaviour in much the same way as they can monitor an_v
agents behaviour.
Thus Coyte is assuming that patients are atvare of the need, rvill@ ant
able to monitor the behaviour of doctors. But are patients aware of the n
to monitor doctors? JVhat do patients perceive to be in their doctor3 ut
fur -tion and aru they aware that doctors might act in a way that is not in
their interests?
Even if patients recognise the need for monitoring, wilt they be able to do
so? The ability of the principal to monitor the agents behaviour is E
the market for health care. The patient might feel that his her heal
has improved after treatment, but often does not know w-ha.; wo
happened with no treatment. Further. given that the principal does not
normally set the contract, the assumption that patients can monitor the
Whilst economists have normally detined SID as medical services the doctor orders nhkh
the qatient would refuse if they were fully informed and knowledgeable. there has a k&A
of agreement in the literature as to how best to test for SID. Given that the de~~~t~~~~ a&e is
impossible to test for, numerous indirect methods have been adopted. the evidence from wkh 5
inconclusrve. Sn another paper (Ryan, l992a) alternative d&mtions of SID are suggtited n!u&
are capable of being tested directly.
is The
questionable.
Iearly limited, and the
in health care than in any other