Establishing Appropriate Agency Relationships for Providers in China

Liu, Yu; Saltman, Richard B.

Given that a central challenge for private hospitals' development has been the difficulty of recruiting senior physicians, an almost hand-in-hand reform initiative alongside promoting private hospitals was to allow physicians to practice in more than one hospital: for example, to enable physician multilocation practice. This multilocation practice policy also sought to redistribute patient flow to lower level health care facilities by better distributing more senior physician resources who previously had practiced only in tertiary-level public hospitals. 30 On January 2015, the Chinese National Health and Family Planning Committee, the National Development and Reform Commission, and 3 other Chinese National Commissions under the State Council released the newest regulation for the promotion of physician multilocation practice, further reducing the regulatory and administrative barriers for senior physicians to practice in other health institutes. 31 By transforming currently employed physicians into "free agents" in the medical marketplace, the multilocation practice policy seeks to break the domination of physician resources by tertiary-level public hospitals. However, critical barriers still exist, and the establishment of multilocation practice will itself create new challenges. First, even though the Chinese government seeks to promote physicians' mobility, it is not surprising that such policies have had little success due to resistance from the tertiary-level public hospitals. As described above, with physicians' income and hospitals' profit so strongly tied together in the existing tertiary-level public hospital arrangement, physicians have become in effect the agents of their hospital. In addition, the nature of uncertainty of medical services and the asymmetry of information 32,33 demonstrate the difficulty of evaluating physicians' performance at their own employer hospital. Holmstrom and Milgrom pointed out that a firm should restrict its agents from conducting outside activities if it is difficult to measure the performance of the agent's "inside firm activity." 34 As a result, while physicians are still agents and employees of tertiary-level public hospitals, it will be difficult to design an appropriate profit/cost sharing mechanism between physicians' current employer hospitals and the facilities they choose for multilocation practice. In all these respects, the tertiary-level public hospitals become a natural barrier to the development of multilocation practices.