Physician Agency, Patients' Trust and Institutions Within Physician Groups

One of the major challenges of health care contracting is that physicians' financial and personal interests are often not aligned with patients' best interests. When this physician agency problem is widespread, patients may lose trust in their physicians, leading to undesirable clinical outcomes. In this dissertation, we explore several means to solve the physician agency problem through institutional arrangements. Chapters 1 and 2 focus on peer-to-peer institutions within physician groups that can sustain a good group reputation, and this group reputation mechanism can play a role in encouraging physicians to provide appropriate treatments. Chapter 1 investigates the group reputation mechanism from a theoretical perspective. The theory suggests that a physician group's reputation outperforms each physician's individual reputation when some kinds of intragroup institutions can minimize an individual physician's motivation to free-ride on the group reputation. These intragroup institutions have to address the information sharing among physicians and the enforcement of peer sanctions after a misbehaving doctor is detected. We investigate the suspension as an example of such an enforcement. Chapter 2 further provides empirical evidence on the effects of peer-monitoring institutions on reducing harmful overtreatments in a laboratory setting. The experimental results suggest that information sharing alone does not significantly reduce overtreatment. By contrast, peer-selection enforcement, in which doctors have the freedom to choose their group affiliations and colleagues, significantly reduces overtreatment, nearly eliminating overtreatment in the best physician groups. Furthermore, patients are more likely to see a doctor from the physician group that maintains a low overtreatment rate. While physicians can adopt vigorous peer-monitoring to mitigate the physician agency problem, patients may attempt to ensure doctors' commitment to prioritizing their patients' best interest when the physician agency problem is perceived. Chapter 3 investigates the informal payment (red-packet) phenomenon in the medical setting using data from China, which can be regarded as an informal gift-exchange institution initiated by patients. We provide supportive evidence that, when patients report low trust in their doctors and indicate poor communication and lack of empathy of their doctors, they tend to offer red packets.