Patients' free choice of physicians is not always good

Abstract

Improving the quality of healthcare is a key objective in the design of healthcare markets. Empirical evidence suggests that physicians' experience is an important element in ensuring the quality of medical treatment. Junior physicians provide a lower quality of treatment than senior physicians. Mortality and morbidity rates are significantly higher in cohort turnover months-often referred to as the "August Killing Season"-than in other months (Young et al., 2011). Junior physicians can improve their skills and reach a senior level by treating a sufficiently large number of patients. However, patients prefer treatment by a senior physician. 1 Yet, rejecting a junior physician inhibits these physicians' learning process. Thus, the rejection of junior physicians reduces welfare in the long term. Our paper investigates the conditions that lead to reduced social welfare when patients have the freedom to choose their physician.We employ a theoretical model to compare social welfare outcomes in a monopolistic market with those in a competitive market. There is one hospital with two junior and two senior physicians in the monopolistic market. There are two symmetric hospitals in a competitive market, each with one junior and one senior physician. Senior physicians provide a higher quality of treatment than junior physicians. If a junior physician treats enough patients during the first period, he will be a senior physician during the second period. Each physician has the same capacity to treat a quarter of the patient population. If the demand for a physician exceeds his immediate capacity, patients visiting this physician incur heterogeneous waiting costs. Waiting costs increase in parallel with excess demand. Each hospital either lets patients freely choose their physician or matches patients randomly to physicians. We refer to the former as a free-choice system and the latter as a random-allocation system.