Principal-agent problems in health care systems: an international perspective

A central feature of all health care systems is the flow of finances from the population, via a variety of agencies, to the providers of health care. Each transfer of funds within the system involves a principal-agent problem, in the sense that a principal is entrusting funds to an agent with the intention that some desired aspect of health care delivery can be secured. This paper examines within the context of a principal-agent model three key elements of the health care system: the raising of finance, the transfer of funds to hospitals, and spending by hospitals. At each of these stages there is a danger that the objectives of society for the health care system are lost. In order to illustrate the issues involved, five mature systems of health care are examined: Austria, Germany, the United Kingdom, the Netherlands and the United States of America. The paper concludes that three aspects of the flow of funds are crucial to securing adequate control: the means of controlling patient entry to hospitals; the mechanism for remunerating hospitals for additional patients; and the control of physicians by hospital management.