The Market for Healthcare in Low Income Countries

New research clearly identifies trust as an important driver of the demand for healthcare. However, doctors who realize that patients may not trust them may also alter their behavior in response. We assemble a large dataset that assesses clinical performance using standardized-patients (akin to audit studies in economics) in low-income countries to investigate this possibility; most of these data are on healthcare providers who practice in the private sector on a fee-for-service basis. We establish that patients receive low quality of care, with a generous definition suggesting that fewer than 50% of cases are correctly managed, and between 70% and 90% of expenditures are medically unnecessary. Strikingly, and in contrast to literature suggesting that the main problem with fee-for-service provision is over-treatment, the majority of these unnecessary expenditures are incurred because patients are incorrectly rather than over-treated.
We then rule-out two plausible explanations for low quality of care: low levels of medical knowledge and low market incentives to invest effort. In our data, there are many healthcare providers who know how to correctly treat the patient, and could substantially increase their revenue by doing so given the price-quality gradients we estimate, but still treat the patient incorrectly.
A model consistent with these findings yields the additional prediction that providing a credible signal of high potential quality for a randomly selected provider should increase quality on average, even without any improvement in knowledge. We verify this prediction through an experiment with informal healthcare providers in West Bengal, India. In our experiment, clinical quality increases without any increase in knowledge, leading to a 19% decline in unnecessary expenditures for patients and a 9% increase in revenues for providers. We conclude that low trust undermines clinical performance in an economically and medically significant manner.