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Rents for Pills: Financial Incentives and Physician Behavior

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  • Gerfin, Michael
  • Müller, Tobias
  • Schmid, Christian

Abstract

We study the impact of financial incentives on the prescription behavior of physicians based on a recent reform in two large Swiss cities. The reform opened up an additional income channel for physician by allowing them to earn a markup on drugs they prescribe to their patients. We find that the reform leads to an increase in drug costs by about 4%–5% per patient translating to significantly higher physician earnings. The revenue increase can be decomposed into a substitution and rent-seeking component. Our analysis indicates that physicians engage in rent-seeking by substituting larger with smaller packages and by cherry-picking more profitable brands. Although patient health is not sacrificed, the rent-seeking behavior results in unnecessary costs for society.
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Suggested Citation

  • Gerfin, Michael & Müller, Tobias & Schmid, Christian, 2022. "Rents for Pills: Financial Incentives and Physician Behavior," VfS Annual Conference 2022 (Basel): Big Data in Economics 264037, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc22:264037
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    More about this item

    JEL classification:

    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets

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