Unbiased Analysis of Today's Healthcare Issues

The effect of financial incentives on gatekeeping doctors

Written By: Jason Shafrin - Oct• 31•06

In 1991 in the UK, the British began allowing general practitioners (GPs) to participate in a fundholding scheme. The fundholding program would reimburse GPs if the amount of chargeable elective secondary care procedures was below their budget and financially penalize the GPs if the amount of secondary care which their patients received exceeded their budget. By 1997, over half of the British population went to a GP who participated in a fundholding system. Later in 1997, the Labor party won the election and the more liberal parliament decided to outlaw the fundholding system.

If one were to analyze the decision to participate in the fundholding scheme in the early 1990s, this analysis is prone to selection bias–since physicians who treat patients less aggressively are more likely to participate–and thus studies such as Croxson et al. (JPubE 2001) are likely to have inaccurate results. On the other hand, the change to non-fundholding system is an exogenous shock caused by a government mandate. Dusheiko, Gravelle, Jacobs and Smith (JHE 2006) use this natural experiment to perform various difference in difference (DD) estimation strategies to determine the effect of financial incentives on gatekeeping doctors.

Their data comes from admission information from over 7000 English practices in the years between 1997 and 2001. The results from a DD regression estimates suggest the “effect of removing the financial incentives of holding a budget was to increase chargeable elective admissions amongst the practices that elected to become fundholders by 3.5-5.1%.” Looking at the conditional means in 1997 (the year before the abolition of fundholding), the authors find that fundholders had a 7.3% lower admission rate than non-fundholders. The paper finds that approximately 60% of this difference was due to financial incentives and 40% was due to unobserved differences between the characteristics of fundholding and non-fundholding practices.

Some procedures (such as ER visits) were not counted against the GPs fundholding budget. One would expect that the amount of non-chargeable admissions would not change after the 1998 abolition, however, it might be possible for GPs to send a patient for a secondary procedure coded as non-chargeable even though it should have been coded as a chargeable admission (similar to DRG creep in the U.S.). The authors claim to find no evidence of this; the amount of non-chargeable admissions does not vary significantly before and after the abolition. Dusheiko and colleagues also use this fact to perform a difference in difference in difference (DDD) estimation and find similar results to the DD regression.

A significant confounding factor in this data is that patients in the UK often have to wait a significant amount of time to receive treatment. In fact, the average wait time in this data set was 100 days. Thus, one may worry that admissions in the current year are based on decisions made in the prior year.

Dusheiko; Gravelle; Jacobs; Smith (2006) “The effect of financial incentives on gatekeeping doctors: Evidence from a natural experiment” Journal of Health Economics, vol 25, pp. 449-478.

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