Abstract:

Health care is a credence good, and its market is plagued by asymmetric information. In this study, we use a laboratory experiment to investigate whether a two-part tariff pricing (TPT) and a separation of prescription and treatment activities (SPD) can mitigate the overtreatment issue. We observe a significant amount of overtreatment (and a smaller non-predicted amount of undertreatment) in our baseline environment. And the two-part tariff pricing is not effective in reducing overtreatment. In contrast, requiring a different than the treating physician to provide diagnosis and prescription for free is an effective way to reduce overtreatment in our laboratory setting. This effect, however, is partially offset by an increased frequency of undertreatment Allowing prescription and treatment physicians to independently set prices for their services reduces efficiency due to coordination failures: in sum, prices are often higher than the expected benefit of patients, who in turn do not attend to the physician. Also, contrary to theory, bargaining power did not play a significant role in the distribution of profits between physicians.