Patient Privilege in Medicine

The paper presented in this ZEW Research Seminar studies how patient privileges-insider knowledge, social ties, or organizational rank shape physicians' responses to financial incentives. Using 100% insurance claims from a major Chinese city, the authors exploit a reform that eliminates physician profits from drug sales. The policy reduces drug use but raises use of other services and total costs for non-insiders, with no health gains, while leaving insiders largely unaffected. Comparing across groups, the paper finds that insider knowledge and social ties each substantially attenuate physicians' responses, while organizational rank plays a limited additional role. The efficiency costs of misaligned incentives fall disproportionately on patients lacking information and relational access.