The effect of financial incentives on gatekeeping doctors: evidence from a natural experiment

In many health care systems generalist physicians act as gatekeepers to secondary care. Under the English fundholding scheme from 1991/1992 to 1998/1999 general practices could elect to be given a budget to meet the costs of certain types of elective surgery (chargeable electives) for their patients and could retain any surplus. They did not pay for non-chargeable electives or for emergency admissions. Non-fundholding practices did not bear the cost of any type of hospital admissions. Fundholding is to be reintroduced from April 2005. We estimate the effect of fundholding using a differences in differences methodology on a large 4-year panel of English general practices before and after the abolition of fundholding. The abolition of fundholding increased ex-fundholders' admission rates for chargeable elective admissions by between 3.5 and 5.1%. The effect on the early wave fundholders was greater (around 8%) than on later wave fundholders. We also use differences in differences for two types of admissions (non-chargeable electives, emergencies) not covered by fundholding as additional controls for unobserved temporal factors. These differences in differences in differences estimates suggest that the abolition of fundholding increased ex-fundholders' chargeable elective admissions by 4.9% (using the non-chargeables DID) and by 3.5% (using the emergencies DID).