TITLE of the finished paper: “Pushing Back Against Private Practice: The Unintended Effects of Paying Public Doctors More”
Authors: Jon Gruber (MIT) Núria Mas (IESE); Judit Vall Castelló (Universitat de Barcelona); Jaume Vives (MIT)
Most developed nations in the world, with the major exception of the United States, insure their populations predominantly through a publicly financed insurance system. In all of these nations, there is also a significant private sector which delivers care alongside the public sector. Health care providers typically operate in both sectors, both over time (e.g. training initially in the public sector before moving to the private sector) and at a point in time, which is often referred to as “dual practice” (DP).
Dual practice is a common feature of a variety of health care systems, both in developed and less developed countries (Ferrinho et al. (2004), García-Prado and González (2011), Hicks and Adams (2000)). Canada is the only highly developed country where it is strongly discouraged, and even forbidden in some provinces (Flood and Archibald (2001)); recent challenges to the prohibition have been unsuccessful (Minister of Health statement, 2022). In Europe it is common for providers working in the public sector to also operate in private facilities. For instance, in Ireland almost 90% of doctors employed in public hospitals do so. In the UK about 61% of the NHS consultants also have significant private work (UK Monopolies Mergers Commission (2008)). In 2009, 25% of male physicians and 14% of female physicians in Norway were involved in dual practice (Johannessen and Hagen (2014)). In Portugal, 23% of the publicly employed healthcare workers have a second job (Ferrinho et al. (2004)). In the Spanish context that we explore around 14% of health care professionals were dual job holders.
Despite the common nature of this practice, it remains controversial. Advocates argue that dual practice allows high ability providers to continue to work in the relatively low-paid public sector by supplementing their salaries with private sector work (Eggleston and Bir (2006)) while, at the same time, allowing them to build their reputation in highly sophisticated public hospitals (González (2004)). Opponents argue that the additional pay that can be earned in the private sector might distort providers away from providing appropriate care to publicly insured patients (Hicks and Adams (2000), Ferrinho et al. (2004)). Other critics argue that DP providers have incentives to boost waiting lists in the public sector to attract demand for private services (Iversen (1997)) or that DP might use public sector resources for their private practice without the proper compensation. Despite the controversy and the universality of this mode, there is little evidence on the decisions of providers to engage in dual practice, nor on the implications for physician labor supply and skill mix.
In this paper, we provide such evidence by focusing on a particular policy aimed at encouraging physicians to work exclusively in the public health sector care. Our context is Spain, where 72.9% of health care is publicly financed (OECD Health data), but where there is also a thriving private sector. There is particular concern in Spain that allowing dual practice may lead to a conflict of interest for physicians (F. Blanco; Health Minister (2014); S. Illa, Health Minister (2020)1). As a result, a number of regions in Spain have introduced” exclusivity bonuses”, which are monetary incentives at the regional level and at different points in time to doctors and nurses that commit to work exclusively in the public system. Those workers receive a monthly salary top up of their public sector wages if and only if they stop working in the private healthcare sector.
We begin with a model of a two-sector physician market. We extend previous models by allowing for hours adjustments in both the public and private sectors, as well as intensive and extensive labor supply decisions that depend on ability. We show that in such a model, introducing an exclusivity bonus will shift some physicians from joint practice in the private and public sectors to exclusive practice in the public sector, as intended. But it will also have an unintended effect: higher incomes for providers in the public sector will lead to lower labor supply. Moreover, the types of physicians who move from the dual sector to public only practice will be of the lowest ability, and therefore may work the fewest hours when they transition. For those reasons, the net effect of such a policy on the provision of medical care in the public sector, and overall, is ambiguous.
We then empirically test our model using two different and complementary data sets on the labor supply decisions of Spanish physicians. We first use a large administrative database (Muestra Continua de Vidas Laborales) that includes the employment history of 4% of the Spanish population to study the impact of the policy on transitions between public and private employment for health care professionals as well as on their geographical mobility. Next, we employ the Spanish Labour Force Survey to disentangle the effects of the exclusivity policy on an additional employment margin, hours worked. We implement a quasi-experimental design to identify the incentives for health care workers by exploiting the temporal and regional variability in the implementation of the exclusivity bonus across Spanish regions.
Doing so, we find that the exclusivity bonus indeed did not have its intended effect. We do find that a 1,000 euro increase in the bonus causes the share of providers in the country working in “dual practice” to fall by 4.3%. However, consistent with our model, for each of multiple measures of provider ability we find that it is the lowest ability providers who transition from dual practice to public only practice. We subject this result to a variety of specification checks and find it is robust. We then move on to model the impact of the bonus on total hours of labor supply among health care providers in Spain. We find that in fact that a bonus equal to 20% of the average public salary reduces total public provider hours by 3.6% on the average, which is equivalent to almost 1 hour less per week. At the same time, hours worked among private only providers rise, presumably to meet demand created by less work in the public sector. Total hours worked don’t change: there is simply a shift from public to private sector hours, exactly the opposite of the intended effect. At the same time, we estimate that this bonus program costs the Spanish public health system 552 million euros per year, or 0.68% of total public health spending.
Our paper proceeds as follows (draft available as Annex 1). In the remainder of section 1 we give an overview of the Spanish medical system. In section 2, we provide a model of dual practice that allows us to generate predictions for the impacts of the Spanish Exclusivity Bonus. In section 3, we describe our data sources. In section 4 we provide the main results on extensive and intensive margin effects.
References
Ferrinho, P., Van Lerberghe, W., Fronteira, I., Hipo´lito, F., and Biscaia, A. (2004). Dual practice in the health sector: review of the evidence. Human Resources for Health, 2(14).
García-Prado, A. and González, P. (2011). Whom do physicians work for? an analysis of dual practice in the health sector. Journal of Health Politics, Policy and Law, 36(2):265–294.
Flood, C. M. and Archibald, T. (2001). The illegality of private health care in canada. Canadian Medical Association Journal, 164(6):825–830
González, P. (2004). Should physicians’ dual practice be limited? an incentive approach. Health Economics, 13:505–524.
Iversen, T. (1997). The effect of a private sector on the waiting time in a national health service. Journal of Health Economics, 16(4):381–396.
Overall project development
Research conclusions
The large and active private medical sector in most countries that feature publicly financed health care systems raises a number of interesting regulatory and payment issues. On the one hand, offering a private alternative allows consumers with the means to do so to buy higher quality care. Moreover, as emphasized by Bronsoler et al. (2021), private sector providers can innovate in ways that can both cost effectively improve patient health and provide a “learning laboratory” for public sector innovation. On the other hand, the most skilled physicians may shift their labor supply to the private sector, reducing the amount and quality of care available to most citizens.
A reflection of that second concern is the exclusivity bonus offered by some Spanish regions. This bonus is designed to ensure sufficient supply of physician labor supply to the public sector. But as we demonstrate theoretically, the impact of such a bonus is unclear. As our model shows, there are offsetting effects from (a) the lowest skilled physicians accepting the bonus restriction and (b) income effects on the group of existing public physicians; the latter is a particularly important concern given the much larger size of the public only sector relative to the number of potential movers.
In fact, our results show that the exclusivity bonus did not have its intended effect. On the surface, the bonus worked, encouraging a significant number of providers to move from dual practice to exclusive public sector work. But as we show, the providers that made the move were the less skilled workers, reducing the benefit to having them focus exclusively in the public sector. Moreover, we find that there was a sizeable reduction in the hours worked in the public sector, consistent with the income effect on existing public sector workers. Moreover, private sector hours actually rose, presumably to meet the demand created by falling hours in the public sector. Therefore, overall, the policy did not change total hours provided to Spanish citizens by their providers; instead, it perversely caused a shift from public to private sector medical care.
Moreover, this policy is expensive. A simple back of the envelope calculation reveals that, given that for the average region there are 9100 public doctors and that the average bonus amount in our sample is 300 euros, the policy costs the Spanish health system 552M euros or 0.68% of the total health spending for the average year in our sample.
Our paper fits within a growing literature on the pros and cons of public and private health care delivery in systems where they sit side by side (Bronsoler et al. (2021); Frakes et al. (2021); Chan et (2022); Knutsson and Tyrefors (2022)). The mixed findings of these studies suggest that considerably more research is needed to understand how to optimally mix public and private.
Impact and outputs of your project
Our work has been submitted to American Economic Journal Applied; A top Journal in the field. We will present it in several academic seminars and conferences (the first one at the IESE Economics workshop, oct 2023).
We expect to contribute to the dissemination of the findings by elaborating practitioner documents and sharing them in class and in business conferences.
Finally, we believe that the outcome of the work can have a very significant impact on policy making, by contributing to shed some light on two key policy questions:
- the impact on population health, access, physicians´ labor supply and equity of public doctors being allowed to work also at the private sector.
- Working on the best incentive mechanism to organize dual practice (doctors working both in the public and the private sector) on the health of the population.
