«Tim Rosengart July 17, 2009 This is a Bucerius/WHU MLB thesis 12,832 words (excluding footnotes) Supervisor 1: Professor Dr. Bernhard Hirsch ...»
Compare for a general overview of the principal-agent theory the works of Schweizer (1999); Salanié (1997);
Spence/Zeckhauser (1971); Alchian/Demsetz (1972); Ross (1973); Mirrlees (1976); Holmström (1979) and also Jensen/Meckling (1976).
Compare Hirsch (2007), p. 88; Levinthal (1988), p. 154.
Compare Hirsch (2007), p. 88f..
Compare Hirsch (2007), p. 88f.; Weber et al. (2003), p. 10; Arrow (1986), p. 1183;
Pratt/Zeckhauser (1985), p. 2; Jensen/Meckling (1976), p. 308; Heide (2001), p. 23; Jost (2001), p. 13 f.;
Lambert (2001), p. 6 ff.; Meyer (2004), p. 64.
Compare Hirsch (2007), p. 91; Heide (2001), p. 33f..
Specific problems can be observed in any principal-agent relationship:49 – A fact, which can be attributed to diverging personal interests and opportunistic behavior of both the principal and the agent, as well as to an information asymmetry between the two parties. The notion of diverging personal interests is a consequence of the previously described homo oeconomicus assumption which expects decision makers to always pursue their personally optimal alternative.
This chapter’s introduction to decision making provides the necessary theoretical background for investigating doctors’ observed economic decision making at a later stage of this thesis.
The provided overview is not extensive, but rather limits itself to some key concepts which will be used in combination with chapter three’s insights into doctors’ environment and its stakeholders to derive hypotheses on physicians’ economic decision making behavior which will then be tested in chapter four.
To investigate the economic decision making behavior of doctors with their own practices, a consultation of decision making theory alone is not sufficient.
Any discussion of physicians’ behavior requires a thorough understanding of the environment in which doctors are working and a discussion of the external stakeholders who are affecting their environment.
Therefore, this chapter will first describe the environment of doctors with their own practices, before it continues to discuss objectives and expectations of the key stakeholders in physicians’ decision making.
The environment of doctors with their own practices shall be defined as the framework in which they nt are performing their job. Their framework is shaped by their own personality, their personal objectives and preferences and also their education, on the one hand, and the structure of the German ambulant health care sector, on the other hand. The framework is to be assumed as fixed sector, and given and as such cannot be influenced by doctors.
H2: Assuming the concept of mental models to be applicable for doctors’ economic decision making. – Education is a key variable in doctors’ decision making.
In total, there are 320,000 active physicians in Germany who are providing health care services. The ambulant health care sector employs 138,000 medical practitioners. The remaining part practices in hospitals, government institutions or other sectors.50 Among the practitioners in the ambulant health care sector, one can further distinguish between three groups of doctors. 51 One group works exclusively for patients who pay for their medical treatment by themselves and are usually reimbursed by a private health insurance company.
Another group of doctors is allowed to treat privately paying patients but, nevertheless, focuses on members of statutory health insurances as its main clientele. Doctors of these two groups have their own medical practices or are partners with an ownership stake in a jointly owned and managed practice.
The third group of doctors has no own surgeries but works as regular employees for doctors with such a surgery.
The type and legal structure of medical practices differs.52 The biggest chunk of doctor’s surgeries is owned and run by a single doctor. Nevertheless, there is an increased degree of integration among practices into joint practices, as a result of the increased capital intensity of technical equipment.
With regard to jointly managed practices, the degree of co-operation among medical practitioners varies and expresses itself in matters such as whether doctors are individually or collectively reimbursed for their work and whether their co-operation is limited to the collective use of equipment [Praxsisgemeinschaften vs. Gemeinschaftspraxen].
The law on the modernization of the German health care system provides the legal foundation to introduce polyclinics [Medizinische Versourgungszentren]. The concept of polyclinics originated in the former German Democratic Republic and locates medical practitioners from different disciplines into one single facility, with the aim of providing better services to patients by one single provider. At the heart of this concept lies the goal to foster process- and disease-management, to increase the utilization ratio of capital intensive equipment by means of using it with several doctors and to provide more attractive working conditions, in particular for young and female physicians who are acting as employees of polyclinics and therefore can rely on more orderly and flexible working hours.53 Compare Bundesärztekammer (2008).
Compare Kassenärztliche Bundesvereinigung (2007).
Compare Hajen et al. (2008), p. 141ff..
Compare Hajen et al. (2008), p. 142.
In the context of this thesis, only surgeries run by a single doctor will be dealt with, and, to the largest extent possible, distinguishing between specializations of doctors will also be avoided. It should only be said that in Germany the ratio of medical specialists [Fachärzten] and general practitioners [Hausärzten] is roughly equal.54 It should also be mentioned that the financial risk of starting a medical practice varies among general practitioners and specialists. The interviews which were conducted for chapter four of this thesis showed that general practitioners need to expect investments of approximately 150,000 Euros into the premise, furniture and all necessary medical equipment. The size of investments that a specialist has to make in order to start his own practice normally does not range below 250,000 Euros. Dentists face investment in a dimension of roughly 300,000 Euros. The biggest financial risk is carried by radiologists whose equipment such as computed tomography scanners is very capital intensive and requires a minimum investment of at least 500,000 Euros. As a rule of thumb it can also be established that the larger the size of necessary investments, the larger is also the tendency of medical practitioners to organize themselves in joint practices. There is also threat that physicians who made heavy investments into expensive equipment try to sell as many treatments, as possible to their patients that involve this equipment, in order to recover their investments.55 This behavior is further intensified because the reimbursement policy of statutory health insurances favors technical diagnostics over consultation time that is spent by the physician with his patient.
The conducted interviews also showed that the composition of investments that doctors make differs. Doctors, who take over existing surgeries from retiring physicians, pay for an existing medical practice and its associated goodwill, as well as its registration with the ASHIP which is necessary to treat members of a statutory health insurance. Other doctors start surgeries from scratch and need to purchase the complete array of necessary equipment but do not pay for goodwill. The amount of money that is invested, however, according to the interviewed physicians and an inquiry with a local bank’s officer, is roughly equal. Medical practitioners with their own practices are considered to be entrepreneurs, with the discretion to organize themselves in various legal structures. As selfemployed persons, they are assumed to be free in pursuing their vocation and their efforts towards economic success.
However, due to the fact that 85% percent of the German population are members of a statutory health insurance and the market for medical treatments for patients who are either members of a private health insurance or are in a liquidity position to pay for any medical treatment by themselves, is rather limited, most doctors with their own surgeries, in order to be in a financially viable position, Compare Hajen et al. (2008), p. 141.
Compare Kuhrt (2009), p. 14ff.; Interview mit Dr. 1, p. 68ff.; Interview mit Dr. 9, p. 128ff..
are members of the Association of Statutory Health Insurance Physicians (ASHIP) [Kassenärztliche Vereinigung]. 56 Disregarding specialization, any physician who wants to be reimbursed for the treatment of a member of a statutory health insurance needs to be in a contractual relationship with the ASHIP, which collectively manages the relationship between medical practitioners and statutory health insurances.57 The ASHIP is directly influenced by statutory health insurances, which in turn are given their general framework by the German legislature and the current political situation. The ASHIP is organized on a federal level, with one ASHIP for each federal state in Germany, except for North Rhine-Westphalia which has two ASHIPs. All 17 federal ASHIPs together are consolidated in a national ASHIP, the Kassenärztliche Bundesvereinigung.58 The ASHIP is entrusted with the task of ensuring an adequate nationwide health care supply, as well as representing the doctors’ interests towards the statutory health insurances. Inherent in this double-relationship is also the important task of distributing the statutory health insurances’ budget for the ambulant treatment of their members to the doctors in the ambulant health care sector.59 In its function of providing a political lobby for medical practitioners in Germany, the ASHIP tries to maximize the aforementioned budget and the medical fee that doctors are paid for their work. The role of the ASHIP is not uncontroversial and by some practitioners seen as redundant, due to the costs involved in sustaining the administration of this organization. Nevertheless, it also needs to be considered that the ASHIP pools the bargaining power of many self-employed doctors, who on an individual level would be in a very weak bargaining position to negotiate favorable medical fees and working conditions in the face of the powerful bargaining positions of large statutory health insurances. Additionally, administrative efforts would be immense, when medical practitioners started negotiating individual contracts with statutory health insurance. 60 In addition to the ASHIP, there is the German Medical Association (GMA) [Bundesärztekammer] which is often interchanged with the ASHIP. The GMA “represents the interests of all German doctors, disregarding their specialization and their placement in either hospitals or the ambulant sector in matters relating to professional policy. It shall play an active role in the public opinionFor a general introduction in the functioning of the German health care system compare Hajen et al. (2008);
Warnebier (2007); Graf Schulenburg/Greiner (2000); Breyer et al. (2005).
Compare Hajen et al. (2008), p. 141.
For a better understanding of the tasks of the Kassenärztliche Bundesvereinigung compare its website:
As said before, no difference will be made between the specializations of health care practitioners. At this point it should nevertheless be said that there are separate ASHIPs for dentists. Compare http://www.kzbv.de/.
Compare Interview mit Dr. 6, p. 105ff..
forming process with regard to health policy in society and legislative procedures.”61 The GMA has no direct influence on the decision making behavior of doctors and therefore will not further be discussed further.
It appears that although doctors with their own surgeries act as self-employed persons, who undertake a considerable financial risk in starting their own practices and who normally should be free in the pursuance of their vocation, their behavior is to a large extent regulated and heavily influenced. The burden perceived by doctors in the form of bureaucracy and administration has even increased during the last years.62 Compare Bundesärztekammer (2009).
Compare Interview mit Dr. 7, p. 114ff.; Interview mit Dr. 8, p. 121ff..