Overtreatment and benevolent provider moral hazard: Evidence from South African doctors

Abstract

Overtreatment is widespread in health, with potentially dire consequences for patients, health systems and public health. It may be fueled by providers when they do not bear the cost of treatment (moral hazard), even they do not profit financially from it (i.e. benevolent providers). We test this hypothesis by creating an exogeneous change in the incentives faced by private doctors in South Africa. We find that provider moral hazard has no effect on overtreatment in volume but fuels overtreatment in cost. By contrast, when they bear the marginal treatment cost, doctors choose cheaper drug. While these results suggest that provider moral hazard contributes to overtreatment in primary care, we consider other plausible channels, such as responses to a perceived demand for high-quality drugs or market segmentation. We discuss the potential scope for supply-side cost-sharing incentives to reduce inefficiency in future health system reforms in South Africa.