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The effect of social and financial incentives in the provision and organisation of healthcare in the Republic of Korea

Kim, SangJune (2024) The effect of social and financial incentives in the provision and organisation of healthcare in the Republic of Korea. PhD thesis, London School of Economics and Political Science.

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Expanding health insurance has significantly improved the population's health. However, the modalities and strategies for expanding healthcare provision have taken on a distinctive form in Asian countries, particularly in East Asia, which is sometimes referred to as the developmental welfare state model (Kwon, 2009a). Rather than being based on a social right, welfare expansion was a means of supporting economic policies and rewarding those who contributed to national development. These social policies were strongly driven by government elites, including the president (Kwon, 1995). Rather than providing all social services directly, the government constructed long-term plans and contracted out the provision of services to the private sector. Among East Asian countries, South Korea exemplifies this characteristic in healthcare provision, with a very different organisation of the health system from that of Western countries. It can be roughly summarised as the rapid introduction of social health insurance and its integration into national health insurance, led by the national elite, the establishment of private capital-driven healthcare institutions, and state control of reimbursement costs to prevent healthcare costs from exploding. While these features have the advantage of ensuring that most people have health insurance in a short period, the government's price control and the profit-seeking of healthcare institutions—many of which are based on private capital—have created an incentive structure that maximises the volume of healthcare and maximises the price per unit of care under the fee-for-service system. As a result, a range of adverse health outcomes gradually emerged in the 1990s and 2000s, including high antibiotic prescribing rates and caesarean sections. Governments implemented interventions to address the negative consequences of the distorted incentive structure. However, these solutions were often patchwork or indiscriminate adoption of foreign policy practices rather than addressing the underlying health system failures. Various attempts were made to change provider behaviour, mainly through the use of financial and social incentives. While there has been some evaluation of these attempts, there is still a lack of comprehensive assessment of their effectiveness and side effects. This thesis examines how social and financial incentives result from policy interventions that aim to improve healthcare efficiency and quality by examining three different interventions where we can establish exogenous variation in some social or financial incentives influencing providers' health behaviours. The thesis aims to evaluate the direct spillover of social and financial incentives in Korean health policies for better policy design and to provide policy implications. Unintended Effects of antibiotic prescription rate disclosure The first paper examines the effect of social incentives on healthcare provision in Korea, specifically in the intended and unintended consequences of the antibiotic prescription rate disclosure in 2006. As mentioned earlier, providers in Korea were placed in a situation where they had to generate income based on the volume of services. While reimbursement costs for consultations were low, a structure was formed in a way that providers could supplement part of their income by prescribing medication and directly dispensing medication at hospitals or clinics. In such a situation, even for mild common colds, the prescription of antibiotics or injections increased rapidly, and the prescription rate for antibiotics in acute respiratory infections exceeded 50%. Such high antibiotic prescription rates are a typical waste of the healthcare system and a factor that causes long-term antimicrobial resistance, resulting in significant economic and medical costs (O'Neill, 2016). With the separation of prescribing and dispensing in 2000, doctors only issued prescriptions, and patients obtained medication from pharmacies. However, the high antibiotic prescription rate persisted for over 20 years and showed no signs of decreasing. At the urging of civil society, the government hastily introduced a public reporting policy. The policy of disclosing information in 2006 is regarded as having successfully reduced the antibiotic prescription rate in the country. However, as highlighted in this paper, the swift implementation of policies resulted in a coding shift, a significant unintended consequence that undermined the policy objectives. Specifically, this coding shift was particularly pronounced in medical staff with high rates of antibiotic prescription in the past and in departments that encountered acute respiratory diseases subject to information disclosure. Furthermore, we document that the prescription rate for broad-spectrum antibiotics did not decrease as the policy focused solely on the overall prescription rate. It demonstrates that medical staff face varying social pressures, namely social incentives, the influence of which depends on the degree of deviation from the norm shared within the professional society. Not all medical staff chose the ideal approach of reducing prescription rates, with some opting for socially undesirable methods. In this chapter, we draw on the theory of motivation change and explore ways to mitigate these side effects. Incentives to prevent unnecessary caesarean sections. The second paper discusses how to correct the distorted incentive structure with financial and social incentives to enhance quality in obstetric care, namely, reducing the share of unnecessary c-sections. In the late 1970s, when compulsory health insurance was introduced, midwives performed more deliveries than doctors. Not surprisingly, there was a significant difference in the cost between the midwives who performed natural deliveries and doctors who performed c-sections, and this continued to be the case even as the number of c-sections performed by doctors increased rapidly in the 1980s and 1990s. Even after health insurance was introduced, small clinics and hospitals performed c-sections in medically unindicated cases due to the high reimbursement cost for c-sections. The effect of insurance coverage on c-section uptake was stark: the c-section rate, which was only about 8% in the 1980s, reached over 45% in the early 2000s. In this chapter, we demonstrate that the introduction of both supply and demand side incentives by increasing the reimbursement cost for doctors who perform normal (vaginal) deliveries by 50% and exempting out-of-pocket payments for mothers who choose normal deliveries lead to a reduction in the c-section rate for first-time mothers decreased by about 3.6 pp. The paper also examines the effect of subsequent public reporting on c-section rates that was expanded several times. This effect was more substantial in areas with higher c-section rates before the policy. We propose two mechanisms. First, higher reimbursement fees for regular deliveries resulted in an increase in the number of doctors in small clinics. This increase in medical professionals increased the availability of normal deliveries, which typically require more time compared to caesarean sections. In addition, the expansion of public reporting, which came about a year and a half after the reimbursement cost increase, reduced c-sections in the short term, but the effect was short-lived. This observation illustrates the adverse effects of a significant difference in payer costs between two elective procedures and low compensation for a time-consuming procedure. At the same time, it shows that governments and insurers can dramatically reduce unnecessary c-sections by adjusting payment levels. It also reveals that the effect of repeated public reporting is not significant and that while increasing public reporting may have a positive short-term effect, it is only a temporary shock to providers. In turn, it highlights the importance of careful reimbursement design in incentive design. Do social and financial incentives increase the quality of stroke care? Finally, the last paper turns to emergency healthcare and looks at the combination of social and financial incentives at the organisational level. Here, the distorted incentive structure encompassed little incentive to provide the best possible medical care for severe emergency conditions resulting from a stroke or myocardial infarction in hospital-level medical institutions. Small and medium-sized hospitals have proliferated due to the lack of consistent government hospital policies and support. In small hospitals, the number of severe emergency cases is also small; therefore, they cannot afford to have specialists available for 24-hour care. In such situations, ambulances transfer emergency patients to nearby hospitals with no medical staff with particular specialities or hospitals with insufficient resources. Patients are transferred to larger hospitals, often missing the optimal golden hour. This paper examines the impact of public reporting on mortality rates for stroke patients following the government's September 2007 announcement of a financial incentive program in July 2011. The results indicate that neither intervention impacted short-term mortality, with borderline evidence that public reporting reduced 365-d mortality rates by around 2pp. We also found evidence that the incentive program reduced the 365-d mortality rate by about 3.1 pp, mainly due to a reduction in the mortality rate for patients with ischemic stroke. As a secondary outcome, both policies were found to reduce the length of stay by about 1-2 days, with the incentive program significantly reducing the length of stay for haemorrhagic stroke, which has a longer average length of stay, thus reducing the total cost of care. Finally, we checked for spillover effects, whereby these changes increase outpatient visits or readmissions after discharge but found no evidence. Overall, we find that healthcare providers not only maximise their economic incentives and patient benefits in their payoff function but also consider broader social incentives. However, as the effect of the social incentive is strong, we document evidence of a high likelihood of side (spillover) effects, and it has been confirmed that some medical providers can engage in various behaviours that undermine policy objectives. In addition, the effects of these social incentives may decrease over time, suggesting that various efforts are needed to align providers' incentives with those pursued in the policy design instead of utilising the tactic of shaming healthcare providers. Second, we show that the side effects resulting from distorted incentive structures can be addressed through incentive corrections, which can significantly contribute to achieving efficiency and quality goals. Thirdly, this paper demonstrates that social and economic incentives have powerful effects even at the organisational level and that support for fixed costs in a hospital environment where market failures occur can achieve hospital service efficiency and promote efficiency through economy of scope.

Item Type: Thesis (PhD)
Additional Information: © 2024 SangJune Kim
Library of Congress subject classification: H Social Sciences > HJ Public Finance
R Medicine > RA Public aspects of medicine > RA0421 Public health. Hygiene. Preventive Medicine
Sets: Departments > Health Policy
Supervisor: Mossialos, Elias and Costa-Font, Joan

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