The principal-agent problems in health care: evidence from prescribing patterns of private providers in Vietnam.

The principal-agent problem in health care asserts that providers, being the imperfect agents of patients, will act to maximize their profits at the expense of the patients' interests. This problem applies especially where professional regulations are lacking and incentives exist to directly link providers' actions to their profits, such as a fee-for-service payment system. The current analysis tests for the existence of the principal-agent problem in the private health market in Vietnam by examining the prescribing patterns of private providers. I show that: (1) private providers were able to induce demand by prescribing more drugs than public providers for a similar illness and patient profile; (2) private providers were significantly more likely to prescribe injection drugs to gain trust among the patients; and (3) patients' education as a source of information and empowerment has enabled them to mitigate the demand inducement by the providers. The hypotheses are supported with evidence from the Vietnam National Health Survey 2001-02, the first and, so far, only comprehensive health survey in the country.