Agency Problem and Health Care Expenditure: Evidence from Terminally-Ill Patients in Taiwan

Abstract

This paper empirically investigates the relationship between the health care expenditure of end-of-life patients and hospital characteristics in Taiwan where (1) hospitals of different ownership differ in their financial incentives; (2) patients are free to choose their providers; and (3) health care services are paid for by a single public payer on a fee-for-services basis with a global budget cap. Utilizing insurance claims for 11,863 individuals who died during 2005-2007, we trace their hospital expenditures over the last 24 months of their lives. We find that end-of-life patients who are treated by private hospitals in general are associated with higher inpatient expenditures than those treated by public hospitals, while there is no significant difference in days of hospital stay. This finding is consistent with the difference in financial incentives between public and private hospitals in Taiwan. Nevertheless, we also find that the public-private differences vary across accreditation levels.