An Analysis of Doctors’ Incentive Mechanism in Grass-root Medical Institutions

SUN Shu-jun, WU Zhi-ang

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An Analysis of Doctors’ Incentive Mechanism in Grass-root Medical Institutions

SUN Shu-jun, WU Zhi-ang

Objective To analyze the doctors’ incentive mechanism in grass-root medical institutions under the essential medicines systemby using the theory of information economics. Methods Doctors’ behavior was analyzed comparatively by applying the principal-agent model of information economics. Results and Conclusion Doctors’ salaries should be increased to improve their work enthusiasm which can help the government carry out the essential medicines system in the grass-root medical institutions.

essential medicines system; grass-root medical institution; doctor; information economics

At present, China’s basic medical system has been fully implemented and good results have been achieved at the grass-root medical institutions. For example, drug prices are under control and the medical burden of patients has been reduced effectively. But there are also some problems, such as patient loss in hospitals, insufficient basic drugs, the low working enthusiasm of doctors and other medical staff, which affect the quality of medical services[1]. These problems have been analyzed by many scholars from the perspective of the basic system, such as ZHOU Lv-lin,(2013), they thought that the government must improve the basic medical system, especially the compensation mechanism and supervision mechanism. However, the related research from the perspective of doctor motivation in grass-root medical institutions is fewer. YUANG Hang (2013) argued that one of the important factors to improve the service level of the doctor was to improve the motivation mechanism[2]. DU Xiu-li,(2010) believed that the material incentive has different effect on service quality in different medical institutions. Economic incentives should be designed according to the scope of service medical institutions[3]. These articles stressed that an effective incentive can improve doctors’ work efficiency. Some literature also mentioned factors and compensation which can affect the doctor motivation mechanism. DAI Tao,(2007) mentioned some factors that influence the incentive effect of medical staff[4]. But these literatures didn’t study the incentive problems in grass-root medical institutions duo to the information asymmetry. Therefore, we tried to use the information economics to analyze doctor incentive mechanism in the grass-root medical institutions. We wanted to find an effective way to improve the enthusiasm of doctors and provide theory support for the implementation of the basic medical system.

1 Problems of the basic medical system

Due to the cancellation of illegal mark-ups on medicines (Namely, doctor can get some commissions), doctor could not get the corresponding incentive which seriously dampened their enthusiasm to some extent. In addition, if the government does not make compensation mechanism for doctors, they would feel disappointed. Of course, the government can raise doctors’ wages to compensate for their commission. But in fact it’s hard for the government to do so. The reasons are as follows: First, the compensation income does not equal the doctor’s commissions. (Income is high at this time, including the commissions) That is to say, the government can’t figure out the doctor’s actual commissions and make the reasonable compensation. Second, sometimes it is difficult for doctors to get the nominal compensation timely because the local government’s financial compensation is not in place. Third, even if the government’s compensation is in place, but without a good incentive mechanism, doctors will fall into the “equal distribution of income trap”. Faced with this situation, doctors in the grass-root medical institution will make two choices. One is to leave the hospital or open their own clinics or get a job in the non government medical institutions so that they can make more money by their own effort. This will lead to the loss of excellent medical personnel. Another is to stay in the hospital, but they will choose a lazy behavior which means that they will reduce the number of patients, or recommend non essential drugs, etc. Of course, a wise doctor will attribute this phenomenon to other reasons, such as patients’ drug habits, the shortage of essential drugs. They want to cover up the fact that their income can not satisfy their demand. For example, a doctor called YIN Jia from Peking Union Medical College Hospital put forward that we should respect doctor’s labor value and changes the current situation that the doctor’s labor value is seriously deviated. By doing so, we can ensure the doctor working enthusiasm[5]. A doctor named ZHENG Shan-hai from China Meitan General Hospital also proposed that doctors’ working enthusiasm should be kept with high salary[6]. Thus, many doctors are generally concerned about their motivation mechanism. If this issue can not be handled properly, it may affect the promotion of basic medical system in the grass-root medical institutions in China.

2 Analysis of the incentive problems in grass-root medical institutions

Assuming that the government is able to represent the interests of patients and help them to pursuit the maximum benefits. (Achieving the most reasonable treatment for patients. Patients can get the best treatment with the least cost.) The government will have two kinds of welfare: R1, R2, and R1

Supposing that when doctors work, the probability of benefit level R2obtained by government is x, the probability level of welfare R1obtained by government is 1-x; Assuming that doctors do not work hard, the probability of welfare level R2obtained by government is y, and the probability welfare R1obtained by government is 1-y. Generally, it is 0

Doctors’ salaries come from financial payment. When the government can supervise doctor’s work, it can choose to pay the minimum wage to the doctor. That is W1=W2=W0. At this point, doctor will choose idleness. Then the welfare of the government is yR2+(1-y)R1-W0.If the government requires that doctors should work hard, it must pay higher wages so that doctors’ net income is equal to W0, that’s（1）

At this time, the government’s welfare is（2）

Supposing the government can improve doctors’ wages by asking them to work hard.

This shows that the government’s increased welfare exceeds doctors’ currency disutility so that the entire society can achieve the Pareto improvement. Therefore, the government can raise doctors’ wages and ask them to work hard. This can improve the welfare of society as a whole.

(1) The government asks doctors to work hard

In fact, it is hard for the government to supervise the work of doctors. If the government requests doctors to work hard, it must motivate doctors; otherwise, doctors can choose idleness. To design an incentive mechanism, two conditions must be satisfied so that the incentive can take effect.

The first condition is to ensure the utility of the doctors is higher than when they idle.

The second condition is to ensure the utility of doctors in their hospitals is higher than what they work in other places.

While the government’s welfare is(6)

The optimal behavior makes (4) equals (5).

With equation eight and concavity of doctors’ utility function, we can conclude that doctor’s expected wages are higher than what the government can offer under unobservable conditions. That’s. As Figure 1 show:

Figure 1 Doctors’ salary and utility under unobservable condition

Of course, the government can allow doctors’ idleness. The government will pay salaries to doctors in accord with the observable conditions and it will only pay W0. The government’s welfare is. We compared the welfare of doctors when the government allows their idleness and the welfare they got when they work hard, it’s. After calculating, we got. Thus the government obtained the probability (x) of benefit level (R2) is relatively small when the doctors worked, which was close to the probability(y) of benefit level (R2) when doctor idled. There would be such a phenomenon that the government’s would be less than the welfare that doctors got in their idleness. That is hat is. At this time, a rational government would default lazy behavior of doctors. The phenomenon which fewer patients in basic medical institutions in many city and the doctor is at leisure that can explain the theory. The government can only to tolerate doctor shirking behavior of these medical institutions.

3 Some suggestions

In most cases, government is unable to supervise doctor in the basic medical institutions effectively. That is to say, the doctor’s behavior can not be observed, the government pays higher than the minimum wage and it can be observed that will improve doctors’ working enthusiasm. Otherwise, doctors will choose idleness or leave these institutions. It is. Therefore, the reason why many doctors lack motivation in grass-root medical institutions is the low wages. Professor SHEN Qing of Zhejiang province rural health research center also thought that small wages lead to the result that many doctors left the basic medical institutions[7]. In theory, it means that doctors did not get as much wages as what they got before the reform (nominal wages +commissions).

Through the analysis, we can see that government will cut benefits under the circumstances that the behaviors of doctors can’t be observed and doctors’ expected wages is higher than the observed cases. If we want to improve the government’s welfare, we should make it possible to observe the behavior of doctors. In general, some technical work can be observed easily. But it is difficult to observe other complicated work. That is to say, the backbone of doctors’ work in the grass-root medical institutions is difficult to observe and the work of the general staff can be observed. As a result, personnel salary of the basic medical institution should reflect their differences. More pay for complicated work will help stabilize the team of doctors and consolidate the achievements of basic medical system. Such as the reform of internal incentive mechanism in Jianzha County People’s hospital which applied the principle of distribution to each according to the doctor’s work. This approach greatly improved the enthusiasm of the medical staff. Doctors’ income has grown steadily since the reform. At the same time, the output level of hospital (government welfare) has been greatly improved. During the first nine months, the basic drug use rate increased from 15% to 42% compared with the same period last year, the proportion of medicines expenses decreased from 71% to 55%, the use of antibiotics in the outpatient department decreased from 65% to 35%, the average cost of hospitalization decreased from 4000 Yuan to 3200 Yuan and the average hospitalization days from 11.2 days to 8.9 days. The reform has achieved the anticipated effect. Therefore, hospital must establish a reasonable incentive mechanism to achieve the “win-win” results[8].

Of course, some in-depth studies are required to solve the incentive problems for doctors in grass-root medical institutions. For example, we should design a good incentive mechanism according to doctors’ effort. There is difference for the impact of basic medical system on doctors’ behavior in urban grass-root medical institutions and rural medical institutions. These problems need to be studied farther in the future.

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[2] YUAN Hang. Analysis of Multi-incentive Model for Doctors in Medical Services Supply Chain [J]. Academic Journal of Second Military Medical University, 2013, (7): 774-777.

[3] DU Xiu-li. An Empirical Analysis of the Incentives of Doctors in Medical Institutions at Rural Area: Based a Survey on Jinhua City [J]. Chinese Health Economics, 2010, (11): 52-54.

[4] DAI Tao, WANG Xiao-wan, HE Ping. Imapct Factor Research of the Medical Workers’ Incentive Mechanism [J]. Chinese Health Economics, 2007, (12): 41-44.

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[6] ZHENG Shan-hai. Supporting the High Salary for Medical and Protecting the Doctors’ Working Enthusiasm [EB/OL]. http://finance.sina.com.cn/review/zlhd/20060316/10362422462.shtml, 2006-3-16.

[7] LI Fan. The Basic Drug System is but A Empty Shell, Local Government Release out of Directory Drugs [EB/OL]. http://www.21cbh.com/HTML/2011-9-15/1NMDY5XzM2NDg1NA. html, 2011-09-15.

[8] YE Long-jie. How to mobilize doctors’ enthusiasm [EB/OL]. http://www.jkb.com.cn/htmlpage/39/396954.htm?docid=396954&cat=0I&sKeyWord=null, 2013-11-29.

Author’s information: WU Zhi-ang, Professor. Major research area: Pharmacy administration. Tel: 13940328503, E-mail: wuerla501@126.com