Physician Agency in China: Evidence from a Drug-Percentage Incentive Scheme

Abstract

This paper examines how physicians respond to financial incentives in China. Faced with the requirement to lower drug expenditure as a percentage of the total medical expenditure, physicians increased non-drug expenditure in addition to decreasing drug expenditure, keeping the total expenditure at the historical level. This shift in the expenditure mix was observed only among insured patients, highlighting the role of patient insurance status in affecting the extent to which physician agency drives medical decision making.

Keywords: physician agency, Chinese Health Care System, drug percentage, healthcare expenditure

JEL Classification: I11, M52, O1