The Interaction of Public and Private Systems in Health Care Provision: the Italian Two-faced Janus

2.1 Advantages of the intramoenia regime

The characteristics of the services provided through intramoenia care and the mechanisms that regulate its functioning show numerous advantages for the various interrelated players in the healthcare system (patients, healthcare managers, doctors and third party payers) (see Figure 1).

Figure 1: The various players in intramoenia regime


Source: Cambini and Turchetti, 2001

Furthermore, intramoenia can be used as an instrument to increase the efficient use (technical, economic, and logistic) of resources acquired by the hospital, allowing for a shorter amortization of expensive medical equipment through increased use, and leading to a faster introduction of process and product innovations.
The advantages for the patient are mainly: the possibility of choosing one’s own doctor; shorter waiting lists; the possibility of choosing day and time of the doctor’s appointment (mode of access); and higher quality accommodation. The fact that this form of private care is highly regulated and made transparent by the fact that it is in any case part of the National Healthcare System, is another positive aspect for the patient when compared to private alternatives which are not part of the intramoenia regime.
A parliamentary inquest has shown that among the positive aspects of the intramoenia regime for the various players is the fact that the hospital can render fee-for-service care; patients can receive complete packages of diagnostic and therapeutic services (promoting continuity of care); the personnel directly and indirectly involved in intramoenia care can receive financial incentives; highly specialised and distinguished doctors operating in the intramoenia regime can, because of their reputation, become the best sponsors for their hospital attracting patients also to the institutional public activity.
In larger hospitals the intramoenia regime is an interesting lever for extra revenues and an effective tool for increasing the professional and economic motivation of the doctors. as a matter of fact the intramoenia regime is, an alternative way for the Public Healthcare System to financially reward the doctor (who, in Italy, compared with other European countries, receives lower salaries), which is useful to reinforce loyalty to the hospital to which he or she is officially linked.
For a third party payer too the advantages of the intramoenia regime can be considerable; among them we mention:
a)    the development of a potentially large and profitable market,
b)    the possibility of reducing the risk of adverse selection by broadening the patient portfolio,
c)    the chance to enter into a market where it is possible to become acquainted with the cost of the various healthcare services, allowing for their monitoring,
d)    the opportunity to use the ‘diagnostic-therapeutic route’ in a cost-effective manner, thereby avoiding redundancies.

2.2 Disadvantages of intramoenia

Although there are numerous advantages linked to the intramoenia regime, the phenomenon has not spread as much as might be expected. One of the main reasons why a patient requests an appointment with a specialist paying in full (particularly when this regards a first appointment) is that he or she hopes that this first contact will subsequently lead to privileged treatment or will create other advantages when deciding to use the public regime. This type of behaviour, however, distorts the original role and task foreseen for intermoenia care and leads to an unfair situation between patients as not all can afford an appointment in the intramoenia regime.
The weaknesses which emerge from the Parliamentary Inquiry mainly regard structural deficiencies (the lack of appropriate spaces) and organisational-managerial deficiencies (the lack of a complete regulation of the intramoenia regime; lack of a centrally organised system of information, booking and pricing; lack of information about the differences between the access to and use of diagnostic and therapeutic paths of the public regime and of the intramoenia regime; the possibility of double waiting lists (patients who erroneously register on both lists).
The most important weaknesses, therefore, mainly originate from the difficulties related to the interaction between organisational and managerial mechanisms linked to public and private transactions and the distortions which may spring from these difficulties.

3. The Characteristics of the Intramoenia Regime: Relationships between Players Involved and Incentives Schemes

The distinctive feature of a hybrid context like the intramoenia regime, characterised by a dense, complex and atypical network of relations between players, is the development of private relationships and contracts and the activation of free professionals/private activities in a public system where everything is regulated by planning. The grafting of such a system into a public body results in the fact that public health medical personnel and the healthcare institutions involved have to cover two different roles, public and private, though performing the same type of activity in the same environment. This dual role could tempt the doctor and the healthcare institute to behave opportunistically thus creating distortions in the relational mechanisms between the different players/operators in the healthcare system. The relationships established between the players involved in the intramoenia regime, i.e. the hospital, the doctor, third party payers and the patient could be distorted because of the different forms of information asymmetry and by the different interests that characterize the players and their interactions (as described below).
In the case of the intramoenia regime, the relationship between doctor and patient includes also the relationship between physician and payer because, at present, in the substantial absence of financial intermediation, the cost of the service rendered is borne by the patient through out-of-pocket spending. This kind of private payment creates further conflict in the agency relationship4 between doctor and patient, due to the existing asymmetric information between the two players. On the one hand, compared to the doctor the patient has less information about his/her state of health (from a technical point of view), the accuracy of the diagnosis, the quality of the service and the effort of the doctor. On the other hand, the doctor’s knowledge with regard to the state of health (in terms of his/her perception) and to the life style of the patient is limited. The doctor is also limited in his own biomedical skills and in the techniques he or she can use to treat different pathologies.
This information asymmetry originates from the fact that the healthcare service, being an experienced good5, is a good of which the quality cannot be known in advance and therefore induces imperfection in the behaviour of the patient and of the doctor, such as adverse selection and moral hazard. The patient is unable to evaluate ex-ante the skill of the doctor and other factors that can influence the outcome of the service provided (adverse selection), and he or she is unable to control the behaviour of the doctor (moral hazard). Information asymmetry consequently allows the doctor to be excessive in the supply of services, stimulating the patient, and/or complying with the request of the patient to consume services in quality and quantity in excess of the actual need. The combination of the heterogeneity of the services offered and of individual consumers’ preferences gives to the doctor a certain market power6.
When analyzing the relationship between the managing directors of the hospital and the doctor, it is possible for the doctor to exploit his or her position to obtain personal benefits, by diverting part of the demand for healthcare services from the public system to the private one performed inside the same public structure: the intramoenia regime. Given the duality of the doctor’s role, the possible opportunistic behaviour could lead in extreme cases to phenomena of coalition/collusion between the hospital management and the doctor. Generally, the doctor has to choose between several ‘packages of services’ to offer the patient for the treatment of a particular pathology taking into consideration his or her general state of health. If the doctor in the intramoenia regime chooses to offer packages of services which are more complex and expensive even for less serious cases, the interests of the doctor could coincide with those of the hospital management, both pursuing profit (on the one hand personal and on the other for the hospital).
However, the interests of the doctor and of the hospital do not necessary coincide. healthcare requires two different types of input, the form and amount of treatment and the effort of the doctor7. This could result in conflict between the doctor and the management if the doctor chooses longer and more expensive treatment for the sole purpose of reducing his or her own effort while still obtaining considerable compensation.8 This would be in conflict with the interests of the hospital if the choices made were not optimal in terms of cost-effectiveness and the hospital is rewarded according to fixed tariffs.
The most significant problems related to the intramoenia regime, resulting from various forms of information asymmetry and the divergent objectives of the players involved, are dealt with through the creation of appropriate incentives for each player. This limits possible opportunistic behaviour and at the same time promots virtuous paths supporting the pursuit of cost-effective delivery of services.
Unfortunately not only does the mostly diffused private financing mechanism of the intramoenia regime, represented by the so-called out-of-pocket expenditure (sustained by single citizens), not introduce the desired appropriate incentives into the system, but it also raises serious issues of efficiency and equity. Out-of-pocket expenditure by citizens, in fact, does not take into account the income level of the patient nor does it direct them towards more cost effective solutions. Moreover the private citizen does not have sophisticated control mechanisms regarding the behaviour of the doctor/hospital nor the proper techniques for differentiating the incentives, able to reduce the effects of the asymmetric information that they suffer. This kind of private payment therefore does not help in defining virtuous schemes of incentives. Therefore, the presence of a third party payer, such as a professional intermediary who uses insurance and mutual mechanisms, private or public, for profit or non-profit, would reduce potential opportunistic behaviour of the various players, thanks to the technical tools proper to insurance science and to the ability to establish appropriate incentive plans together with greater ability to control, directly and indirectly, which derives from them. After signing a contract with the patient, the third party payer is commited to covering part of the healthcare expenditures incurred by the patient, thereby significantly influencing the doctor-patient relationship, also with respect to the demand for healthcare services9. The patient who signs a service contract or an insurance policy, assuring thereby a co-payment resulting in a reduction of the expected expenditure, could be induced to opportunistic behaviour of moral hazard. Such behaviour would be recognizable in an improper increase in the quantity and quality of services required and in a disincentive to seek operators offering lower prices or providing an equal quality of service10. In order to reduce the probability of collusive behaviour between the patient (insured) and the doctor, the third party payer may provide for the introduction and use of technical tools and mechanisms typical of the insurance business, such as franchise clauses, maximum coverage, and bonus/malus conditions.
The presence of a third party payer has strong influence in the context of the intramoenia, where there is a strong interaction between the different players in the market, rendering the role of the managers of the hospital particularly delicate and essential for the functioning of the whole healthcare system. In particular, the hospital should provide a high quality service otherwise patients could be induced to change third party payer (and as a consequence also the healthcare provider). At the same time, however, the hospital should minimize costs, otherwise the third party payer could decide to cancel the contract and change healthcare provider. Therefore, the possible referral of the doctor from the public services to the intramoenia regime produces benefits for the doctor and for the hospital only in the short term. This is because in the long-term the third party payer might entrust the care of its insured clients to another hospital (outside option) with serious consequences for the reputation of both the doctor and the hospital.

4 Agency Relationship occurs when the preferences of the parties establishing a relationship of bilateral exchange do not coincide and one of the two parties has more relevant information than the other (Ross, 1973; Arrow, 1986).
5 Darby and Karni, 1973.
6 Satterthwaite, 1979, 1985.
7 Ma e McGuire, 1997.
8 The level of effort of the doctor, considered as the time dedicated to visits and patient care, is proportional to the quality of service rendered, however, as only the doctor can know his or her own level of effort/commitment (moral hazard variable) this information cannot be negotiated, but it strongly depends on the incentives included in the contract, which are solely based on the amount of treatment given and not on the desired level of effort/commitment.
9  Zeckhauser, 1970; Shavel, 1979.
10 Pauly, 1968, 1986.

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