Last week I wrote an article – Health Insurance and Moral Hazard – for Duke Professor Donald Taylor’s Free For All Blog.

A reader commented on the article and asked the following questions.  I will answer the first part of the question in this entry and the second in a later one because together the post would be too long.

Danny M said…

Wonderful, detailed assessments of what’s going. Thanks! Question though…I don’t understand how the individual’s proposal would better incentivize docs/increase their pay. The salary I assume would stay the same. Allowances are being eliminated and pharma kickbacks that are already happening would just be legalized?

Also, I wonder if China has comparative-effectiveness research? If so, I can’t see the pharma kickbacks to docs as being very ethical. How would that benefit the entire health care system?

Thanks again…sounds like a great schedule over there.

‘Allowance’

The term ‘allowances’ is a special form of payment that is fairly common in Asia’s market driven health systems – Vietnam, Cambodia, and China all have it.  Essentially, departments within government hospitals are clearly demarcated into separate administration zones.  This extends to hospital accounts – almost every department has their own.  Every time someone gets treated within the department, a part of their payment goes into the department account.  At the end of the month a fraction of the funds earned by the department are given out to the doctors as an ‘allowance’ – basically, a sort of salary subsidy.

The problem with ‘allowance’ is that it negatively incentivizes departments to hoard patients.  Doctors’ salaries are so small that allowance can make up as big of a fraction of the overall pay as the salary itself.  And, the more patients they see the higher the allowance.  While in theory government hospitals are supposed to work together to cut down on the number of patients that have to wait for services – i.e. a busy department at one hospital will send their patients to a less busy department somewhere else -  it is common to have a department in one hospital have 30 people in the queue while an identical department elsewhere close by is empty.  Of course, no one tells the patients that.

This is why if you ever go to a Chinese government hospital for a check up, you have to get a ticket for every department that you go see – part of the function of those tickets is to ensure every department that participated in your treatment gets a portion of the profits.