The imperative to improve healthcare efficiency is now stronger than ever. Rapidly increasing healthcare demand and the prospect of healthcare cost exploding require that measures be taken to make healthcare organizations become more efficiency-aware. Alignment of organizational interests is therefore important. One of the main hurdles to overcome is the provision of the right incentives to healthcare workers, in particular physicians. In this research we investigate the incentive system for physicians in university hospitals. We present an inquiry held in a large university hospital in the Netherlands and show that non-financial incentives receive significantly more support among physicians than financial incentives. Over 95 percent of the physicians indicated they derive more work stimulus from research possibilities or scientific status than from wage. Over 80 percent of the physicians also indicated they prefer to be able to do more research. We therefore identified a broad class of non-financial incentives aimed at physicians in university hospitals: research facilities. The main tradeoff in using research facilities within an incentive system is between efficient resource utilization and inducement effects. This thesis constructs a principal-multi-agent model where agents engage in both care and research and which includes heterogeneity and private information. We study how research facilities incentives can be used to improve hospital performance if the current wage system is left intact. We show that research facilities are optimally used as incentives for both care and research activities, and that the hospital offers different contracts depending on physician ability and valuation. Moreover, if physicians need to reveal their valuations for research facilities, the hospital finds it optimal to allow physicians to make a rent. We discuss some implications of extending the theoretical results to practice.

health care management, incentive contracts, mechanism design, principal agent problem
Erasmus School of Economics
Econometric Institute Research Papers
Report / Econometric Institute, Erasmus University Rotterdam
Erasmus School of Economics

Glorie, K.M, van Oostrum, J.M, Dur, A.J, Kazemier, G, & Wagelmans, A.P.M. (2010). Physician Incentive Management in University Hospitals: Inducing Efficient Behavior Through the Allocation of Research Facilities (No. EI 2010-58). Report / Econometric Institute, Erasmus University Rotterdam (pp. 1–90). Erasmus School of Economics. Retrieved from