Exit, Choice Or Loyalty: Patient Driven Competition In Primary Care

ABSTRACT**: This paper analyses the potential costs and benefits from patient driven competition between GPs and specialists by comparing gate‐keeping with direct access to specialist care. The two access rules are compared under fee‐for‐service and capitation, on their performance at minimizing both total financial costs and patients’ opportunity cost of time in care. To analyse the social cost of patients’ potential access mistakes, two types of illnesses are considered, with two levels of severity and an equal probability for each of the four events. The results generated under information symmetry show that gate‐keeping always dominates in terms of minimizing financial cost. Results are extended to show that under patients’ heterogeneity with respect to time preferences, allocative efficiency can be enhanced in gate‐keeping by giving the patient the option to seek a specialist directly, provided he bears the extra cost. When turning to information asymmetry, results are reversed, and direct access is shown to be more cost effective. This is due to patients’ ability to constrain providers’ opportunistic behaviour by ‘voting with their feet’. Beyond increasing allocative efficiency, patient choice is therefore found, under certain conditions, to contribute towards enhancing productive efficiency. Finally, introducing co‐payments to share the financial risk associated with direct access potentially weakens patients’ ability to curb providers’ strategic behaviour. Under information asymmetry, direct access to specialist care should therefore remain free if patient's disutility in time in care is linear. When it is instead increasing, we show that a co‐payment becomes necessary to curb specialists’ information rent. Finally, under information asymmetry, the mixed solution (gate‐keeping with optional direct access) improves on pure gate‐keeping but is still suboptimal.