Dual Practice by Health Workers: Theory and Evidence from Indonesia

Abstract

The paper assesses the impact of physicians' dual practice on public health services. Using a simple theoretical model we conjecture that dual practice may increase the number of patients seen but reduce hours spent at public facilities in weak monitoring environment if public physicians lack motivation and/or if their opportunity costs are very large. Using health-facility (known as puskesmas) level panel data from Indonesia, we then test the validity of these conjectures, relying on the exogenous variation in the initiation of private practice among puskesmas heads after a 1997 health regulation. Our empirical design focuses on health workers with at most ten years of experience and attach greater weights to the observation around 5 years of experience. Results using a 2SLS IV regression within a difference-in-difference framework, comparing the public health provision measures of eligible and non-eligible workers before and after the regulation support our conjectures. We also find evidence of weak monitoring, lack of motivation of dual practitioners and high opportunity costs of public service provision explaining the results. Results have important implications for human resource management for Universal Health Care policy.