Physicians as Double Agents in a Universal Health Care System: Evidence from Generic Pharmaceutical Adoption in Taiwan

Physicians’ generic pharmaceutical adoption involves not only patients’ and insurance payers’ cost, but also their own interests. This study examines this double agency problem for physicians by using Taiwanese data because two of its institutional features: First, patients and physicians in a universal health care system did not self-select their insurance plans. Second, physicians in Taiwan respond to strong financial incentives because they are allowed to both prescribe and dispense drugs. The empirical results show that a larger price difference between brand-name and generic drugs increases physicians’ likelihood for prescribing generic prescriptions. However, this effect decreases as the payer’s cost share percentage increases. These results indicate that physicians’ prescriptions decision internalize patients’ cost but not the payer’s ones. This study also demonstrates that physicians who are more responsive to profits prescribed more generic drugs, including owners of hospitals and clinics, and physicians in clinics and private institutions. However, this effect decreases as the number of competitors in the drug market increases.