Physician Dual Practice

It is a common phenomenon in many countries that physicians employed in public hospitals also work in private clinics. In the literature, physician dual practice is argued to be a self selection mechanism in terms of quality and morality. In other words, hospital physicians with high quality or low morality are more likely to have private practice. In some developing countries, dual practice is also considered as an informal way to compensate public hospital physicians whose salary is relatively low. However, physician dual practice remains a controversial issue since physicians may take advantage of hospital resources for their own interests. For a health authority in a county/city, whether to allow physician dual practice is certainly an important policy concern. In this paper, we consider the question whether dual practice should be allowed in the context of the policy objective: patients should receive their care in the treatment setting that is efficient for them. Hence, the focus of the paper is on patient heterogeneity and differences in the cost of care in a hospital and an outpatient setting, depending on the patient’s illness condition. In an environment in which there is information asymmetry between doctors, on the one hand, and patients and health authority on the other hand, we analyze equilibriums in which doctors have an incentive to exploit their information advantage over patients and health authority to increase their net income. We show that in general, such equilibriums will not be economically efficient in the sense that doctors will not have an incentive to refer patients to the most efficient place of treatment. However we find that under some conditions, allowing dual practice can lead to a second-best improvement in efficiency, compared with a situation in which dual practice is not allowed. 1 Email: [email protected]