metadata: authors: 0: author: Das, Jishnu
1: author: Hammer, Jeffrey
count: India
docna: 0: docna: Money for nothing : the dire straits of
            medical practice in Delhi, India
docty: Policy Research Working Paper
subtopic: Pharmaceuticals Industry,Health Care Services Industry,Pharmaceuticals & Pharmacoeconomics,Health Economics & Finance,Health Service Management and Delivery,Hydrology
abstracts: cdata!: The quality of medical care received by
            patients varies for two reasons: differences in
            doctors' competence or differences in doctors'
            incentives. Using medical vignettes, the authors evaluated
            competence for a sample of doctors in Delhi. One month
            later, they observed the same doctors in their practice. The
            authors find three patterns in the data. First, what doctors
            do is less than what they know they should do-doctors
            operate well inside their knowledge frontier. Second,
            competence and effort are complementary so that doctors who
            know more also do more. Third, the gap between what doctors
            do and what they know responds to incentives: doctors in the
            fee-for-service private sector are closer in practice to
            their knowledge frontier than those in the fixed-salary
            public sector. Under-qualified private sector doctors, even
            though they know less, provide better care on average than
            their better-qualified counterparts in the public sector.
            These results indicate that to improve medical services, at
            least for poor people, there should be greater emphasis on
            changing the incentives of public providers rather than
            increasing provider competence through training.
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repnme: repnme: Money for nothing : the dire straits of
            medical practice in Delhi, India
display_title: Money for nothing : the dire straits
            of medical practice in Delhi, India
listing_relative_url: /research/2005/07/6078943/money-nothing-dire-straits-medical-practice-delhi-india
topicv3: Water m1326522 137,Pharmaceuticals m1327740 1350,Health m1504661 3480,Surgery m1504689 3616,Fee for Service m1504821 3568
publishtoextweb_dt: 2010-07-01T00:00:00Z
no_of_pages: 41
author_keys: 0: author_key: NA
1: author_key: NA
model_extractions: WPS3669

# Money for Nothing

The Dire Straits of Medical Practice in Delhi, India<sup>1</sup> Jishnu Das The World Bank Jeffrey Hammer The World Bank

## World Bank Policy Research Working Paper 3669, July 2005

_The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the view of the World Bank, its Executive Directors, or the countries they represent. Policy Research Working Papers are available online at http://econ.worldbank.org._

> 1Corresponding author: Jishnu Das (jdas1@worldbank.org). Vignettes modules were designed in consultation with Dr. Tejvir Singh Khurana and discussions with Ken Leonard and Asim Ijaz Khwaja. The pilot and survey was implemented by Jishnu Das and Jeffrey Hammer with N. Deepak, Pritha Dasgupta, Sourabh Priyadarshi, Poonam Kumari and Sarasij Majumdar, all members of The Institute of Socio-Economic Research on Development and Democracy Delhi (ISERDD). Further support from Purshottam, Rajan Singh, Ranjit Gautam and Simi Bajaj, often under trying circumstances, is gratefully acknowledged. We also thank Veena Das, R. K. Das, Ken Leonard, Carolina Sánchez and seminar participants at Massachussets General Hospital, The World Bank (Delhi), the Center for Policy Research (Delhi) for comments and suggestions. We are especially grateful to Xavier Gine for helpful discussions at an early stage. The project would not have been possible without the cooperation and enthusiasm of the participating providers as well as administrators of the various public sector facilities surveyed. The research was funded by a research grant from the World Bank.
# Abstract

The quality of medical care received by patients varies for two reasons: Differences in doctors’ competence or differences in doctors’ incentives. Using medical vignettes, we evaluated competence for a sample of doctors in Delhi. One month later, we observed the same doctors in their practice. We fi nd three patterns in the data. First, what doctors do is less than what they know they should do–doctors operate well inside their knowledge frontier. Second, competence and effort are complementary so that doctors who know more also do more. Third, the gap between what doctors do and what they know responds to incentives: Doctors in the fee-for-service private sector are closer in practice to their knowledge frontier than those in the fi xed-salary public sector. Under-quali fi ed private sector doctors, even though they know less, provide better care on average than their better-quali fi ed counterparts in the public sector. These results indicate that to improve medical services, at least for poor people, there should be greater emphasis on changing the incentives of public providers rather than increasing provider competence through training.
# 1 Introduction

Academic and policy discussions regarding health care increasingly focus on the quality of medical care as a crucial determinant of health outcomes (Cutler 2003). Policy levers to address quality disparities in health care must cover a variety of underlying causes (Baicker and others 2004; Kerr and others 2004; Fisher and others 2004). If geographic variation in practice-quality re fl ects differences in provider competence, the solution lies in geographical incentives for doctors and/or greater movement of patients.<sup>1</sup> If variation in practice quality arises from differing provider effort, stronger performance incentives are called for.

New data on provider competence and effort show that competence and effort both play a role in the quality of medical care received by patients. These data show that what doctors do in practice is very different from what they know they should do.<sup>2</sup> This gap re fl ects the cost of effort relative to reward. And it responds to incentives: Those on a fee-for-service payment scheme are closer to their "knowledge frontier" than those on a fi xed salary. Furthermore, effort and competence are complements, not substitutes. More competent doctors spend more time with patients, ask more questions, and do more examinations. Less competent practitioners deliver poorer health care services because of the direct effects of lower competence and the indirect effect of lower effort-in-practice.

This is the second of two papers on the quality of medical care in urban India that stem from a study of medical practitioners in seven neighborhoods of the capital, Delhi. The fi rst paper examined the “competence” or knowledge of practitioners using medical vignettes (Das and Hammer 2005). Vignettes–a set of standardized hypothetical cases–were presented to practitioners and the questions asked, examinations suggested, and treatments recommended were recorded. The performance of practitioners was then aggregated into an index of competence.

In a second phase of the study observers visited the same practitioners in their clinical practice for a whole day, recording what was actually done in practice.<sup>3</sup> The data allow several types of comparisons between what providers know in principal (competence) and what they do in practice. For all observed interactions in the clinic, general competence can be compared with average effort, aggregated over all patients during the day. We can also make this comparison for the same doctor for the same set of patient conditions as appear in the hypothetical vignettes in some cases.

> 1 Peabody and others (2000) document variation in competence within two institutions in the US. A recent study by Mattoo and Rathindran (2005) for instance suggests signi fi cant gains to trade from higher patient mobility.

> 2 That there could be a difference between what doctors know and what doctors do is vividly illustrated in this excerpt from an interview with a provider during the pre-test phase of the research: Dr. S.: “Yes, there is a lot of diarrhea and dysentery in this locality–what can they do as well? The water is dirty and people do not know to boil it–that’s why their children are always falling sick.”

> DAS: “So, what do you do for children with diarrhea ?” Dr. S.: “What can we do? The usual things–we tell the mother to give water with salt and sugar to the baby and then also give some medicines.”

DAS: “Such as ?”

> Dr.S.: “The usual–metrogyl ( metronidazole), loperamide (an anticholinergic), Furoxone ( furazolidone).”. DAS: “But isn’t ORS enough ?” Dr.S.: “Of course the WHO and others keep saying that we should only give ORS. But if I tell the mother that she should go home and only give the child water with salt and sugar, she will never come back to me; she will only go to the next doctor who will give her all the medicines and then she will think that he is better than me.”

> 3 Our measures of effort re fl ect what doctors do once they show up for work, abstracting from the number of hours they choose to work. Doctors in the public sector are frequently absent, although less so in urban compared to rural areas (Chaudhury and Hammer 2005, Banerjee, Deaton and Du fl o 2004, and Chaudhury and others, 2005)

1
The observations between what doctors know and what they do reveal differences across institutional settings and geographical locations. Private sector practitioners do more or less what is expected of them by the patient. For poorer patients, the quality of advice is low and such patients spend a fair amount of money for nothing–low-value advice and unnecessary drugs. Wealthier patients get better advice, both because they see more competent providers and because these providers put in greater effort. However, they also spend a fair amount of money for nothing in the form of unnecessary drugs that the provider knows to be unnecessary on the basis of the vignettes.

On average, public sector practitioners spend less time and effort with each patient and do less (relative to the private sector and relative to the fact that they tend to see sicker patients) than they know to do on the basis of the vignettes. This public-private disparity masks some variation within the public sector. Public sector providers in smaller clinics and dispensaries substantially under-perform public sector providers in hospitals; the latter are comparable to private practitioners. Unfortunately the poor do not use public general hospitals. Over a two-year period, a majority (55 percent) of the visits to doctors among poor and middle-income households in a simultaneous survey were to the private sector. Of the remainder, 31 percent were to clinics and dispensaries and only 13 percent to public hospitals. The public sector spends a great deal of money for nothing in the form of salaries for doctors (over 80 percent of the government’s health budget) and the heavy subsidy to educate them. This eventually translates into cursory treatment and poorly delivered health care. The concentration of more competent providers in richer neighborhoods, combined with the low use of public hospitals imply that the poor in the city are particularly under-served for several reasons: (1) competence among the private sector practitioners they visit is low; (2) they receive worse medical care both due to the direct effects of lower competence and the indirect effects of lower effort; and (3) lower incentives in the public sector completely offset the protective effects of higher competence. Thus the poor receive low-quality care from the private sector because doctors do not know much and low-quality care from the public sector because doctors do not do much. Households in poor areas are better off visiting less-quali fi ed private practitioners than more-quali fi ed public doctors.

We feel the results suggest that improved medical services, at least for poor people, are more a function of a lack of incentives for public providers rather than lack of competence among private providers. India is one of the few countries without any payment incentives for its public sector doctors–richer countries do not pay primary health care physicians through a fi xed salary.<sup>4</sup> Even when the system is publicly fi nanced, incentives are in place to make remuneration dependent on the number of patients seen. For the private sector, problems with implementing existing regulations severely limit the number of direct policy interventions. The solution is more likely to come from improving information to consumers and reducing the demand for extensive, inappropriate treatment.

The literature on incentives and performance for doctors includes studies in high-income countries (see the review by Gosden and others 2000 on performance under capitation and fee-for-service regimes) that

> 4 Sweden is the exception where local governments hire providers. Even there, dissatisfaction with services has led to experimentation with performance incentives in areas that allow more competition, such as Stockholm.

2
typically focus on a set of doctors under a common management scheme. Fewer studies relate the performance of speci fi c doctors to the incentives they face. While this may seem innocuous, recent contributions suggest that moral hazard in teams could lead to different results with institutional rather than personal incentives (Gaynor and others 2004).

Another part of the literature examines the link between competence and effort in high-income countries and shows that performance in vignettes is different from that in practice for a sample of 34 doctors in the Netherlands (Rethans and others 1991). However, given the sample size, they do not examine the complementarity (or lack thereof) between effort and competence or the impact of incentives on this gap. Closer to the results presented here on competence and effort is more recent work by Leonard and others (2005).<sup>5</sup> Leonard and others examine a similar problem in Tanzania and obtain similar results. A detailed discussion is postponed for later.

The remainder of the paper describes the health care environment in urban India, how the data were collected and how measures of competence and effort were constructed. It also presents descriptive statistics for these variables in both the public and private sectors (Section 2). Section 3 presents a simple model (and discusses some variants) that could help explain the more salient features of the descriptive statistics. Sections 4 and 5 present an empirical strategy and regression analysis of the determinants of effort. We suggest interpretations of the coefficients given the associated identi fi cation problems. Section 6 offers a short, tentative policy discussion and a discussion of further research.

# 2 The Environment, Data Collection and Description

## 2.1 The Environment

India is a low-income country and one-third of its population of 1.2 billion lives in urban centers. The capital of the country, Delhi, is a teeming metropolis with over 14 million inhabitants and covers a 1,400 sq. km area. Delhi is rich compared to the rest of the country–in 1995-96, the average per capita income in Delhi at almost Rs. 20,000 was twice as high as the rest of the country. Because Delhi is the capital and one of the richest regions in the country, the availability of health care is no longer an issue. Every household can chose from 80 practitioners within a 15-minute walking radius. The average household visits a doctor once every two weeks. Furthermore, the poor visit doctors more than the rich (Das and Sánchez 2004).

Health care in Delhi (and the rest of the country) is provided through a public health system that consists of hospitals and fi rst responder Primary Health Care Centers (PHCs), and a larger number of private providers. Quali fi cations in the private sector are bewildering. Training periods can range from 6 months to 6 years. For this study, practitioner quali fi cations are grouped by whether the practitioner holds

> 5 Our work, along with Leonard and others (2005) and Barber and Gertler (2005) are the fi rst to measure the quality of health care using vignettes in low-income countries. In many demand studies, the "quality" of a health clinic is measured by the presence or absence of pharmaceuticals in stock or other easily observed physical characteristics of the facility (Collier and others 2003), which are better measures of subsidies, rather than medical care, if public facilities give drugs for free. An accurate diagnosis and prescription can be taken to a pharmacist for fi lling. What is not measured, but what is both part of the intuition that quality matters and the part of that is speci fi c to the facility, is the accuracy of diagnosis and the appropriateness of treatment

3
a Bachelor of Medicine and Bachelor of Surgery (MBBS) degree or not. The MBBS is a rough equivalent to a MD in the United States. However, only 52 percent of visits are to MBBS doctors. The remainder are to a wide range of alternatives available in the city. These may include practitioners with formal training in alternative medicine, those with no formal training but with degrees recognized by the government, and those with no formal degrees or government recognition.<sup>6</sup> Providers in the public sector all hold a MBBS degree, but work in two different settings: Public dispensaries or primary health care centers and hospitals. Since hospitals in Delhi historically re fl ected the highest standard of care in the country, the competence and effort of these two groups may differ substantially.

Although the average public sector provider is more quali fi ed (with an MBBS degree), households overwhelmingly favor private sector practitioners. The private sector accounts for 82 percent of all visits nationwide (Mahal and others 2001); for our sample this is slightly lower at 75 percent. Since there is no medical insurance apart from the provision of government health care, families frequently incur high out-of-pocket expenditures. The World Health Organization estimates that 82 percent of total spending on health care in the country is out-of-pocket spending on primary and in-patient care.

The recently elected government’s (2004) promise of a Common Minimum Program guarantees quality education and health for all. One hotly debated topic is the relative quality of providers in the private and the public sector. Some say that private providers are mostly “quacks” with little training and medical competence; others believe that the public sector is full of lazy doctors who do not work. As it turns out, each view has an element of truth.

# 2.2 Data Collection

Details of the sampling frame and data collection exercise are described in Das and Hammer (2005). Highlights relevant for this paper are as follows. In 2001, the Institute of Socio-Economic Research on Democracy and Development (ISERDD) began a longitudinal study of households in seven neighborhoods of Delhi. Three of the neighborhoods were poor, two middle income and two relatively wealthy. Over two years, 300 households were interviewed once a week for 35 weeks and once a month for another 8 months. Information was collected on health and health-care seeking behavior and demographic, income and consumption modules were administered twice in the two years. Less than 4 percent of the households approached refused to participate and the demographic, educational and expenditure pro fi les of the households in the study is very similar to representative samples of Delhi residents in the National Sample Survey and the National Family Health Survey (Das and Sánchez 2004).

These data on health care were used to construct a universe of relevant providers in the seven neighborhoods of the ISERDD study in two steps. First, all providers that anyone in the 300 households visited during the fi rst year of the survey was included. Second, research teams were sent on a reconnaissance visit in which

> 6 Following the Alma-Ata declaration on Primary Health Care in 1978, the Government of India established training courses for providers drawing on different traditions in Indian medicine. These were Bachelors of Ayurvedic Medicine and Surgery (BAMS), Bachelors of Integrated Medicine and Surgery (BIMS) and Bachelors of Unani Medicine and Surgery (BUMS). These providers were to provide basic care and refer serious cases to facilities with MBBS doctors. Further down the pecking order are the Registered Medical Practitioners (paramedics with some rudimentary training). However, given the limited regulatory power of government authorities, some providers have no formal training at all.

4
all providers with a sign advertising medical care within a 15-minute walking radius around the perimeter of the area of the household survey were noted. This formed a "census" recording the quali fi cations, age, gender and experience of providers in the universe.

From this set, a sample of 20-25 practitioners were drawn from among those who had been visited (with sampling weights proportional to the number of all visits by households) and 10 from the group that had not been visited by anyone in the household sample in each of the seven neighborhoods.<sup>7</sup> From this sample, 205 providers participated in the study after a 15 percent rate of non-compliance.<sup>8</sup> While most practitioners (163) were in clinics staffed by a single person, we also interviewed practitioners in hospitals (public and private) and public clinics with multiple providers. In these cases, we interviewed at least two providers in every facility; for hospitals, interviews were conducted in the out-patient department that serves walk-in patients.

For each of the 205 providers, we completed a two-stage inquiry. In the fi rst part we administered fi ve "vignettes" or hypothetical cases acted out by two interviewers (the provider was aware of the role playing) to every provider in the sample (Das and Hammer 2005). One of the interviewers acted as the "patient" while the other recorded questions the doctor asked and answered those that the patient would not know the answer to, such as the results of an examination or tests recommended. Diagnoses reached and the treatments prescribed were also noted. This large volume of information was summarized by use of item response theory (IRT) that gave each doctor a score derived as a weighted average of the relevant questions asked and treatments prescribed–the weights being determined via the statistical technique. We call this score the “competence” of the provider.<sup>9</sup> The main results of that study relevant for this paper were as follows.

- Private providers with MBBS degrees were most competent with average competence one standard deviation higher than their non-MBBS counterparts and a distribution of competence skewed to the left.

- Private practitioners without an MBBS degree were least competent on average but with a distribution skewed to the right (some were quite good).

- The distribution of competence in the public sector was dispersed and distinctly bimodal, a feature that came out clearly with the IRT scoring method. The two parts of the distribution corresponded quite closely to doctors who served in small clinics and dispensaries versus those in large, general hospitals (again, among the most prestigious in the country). This division will continue to be important here.

- Private MBBS doctors were slightly better, on average, than those in the public general hospitals. Private practitioners without an MBBS were somewhat worse, on average, than public MBBS doctors in small clinics, but not by much.

> 7 Some neighborhoods had fewer than 25 different providers which is the reason for the range.

> 8 Reasons for non-compliance were evenly divided between providers who had left the locality or could not be located (in some cases, a household may have visited the provider a single time and could not remember the address) and those who refused. It is hard to sign the direction of the bias–refusals could either re fl ect higher quality with a greater opportunity cost of time or lower quality if the provider was scared of personal repercussions from the survey.

> 9 IRT can be thought of as principal components or factor analysis properly treating the large number of dichotomous variables. The analogue of the fi rst principle component or factor is our measure of competence.

5
- Finally, there was considerable sorting across neighborhoods for both private and public sector practitioners. More competent private sector providers were overwhelmingly in richer neighborhoods. Surprisingly, public sector doctors were similarly located. Similar sorting patterns among the public and private providers imply that the difference in competence between public and private sector providers in different localities was quite minimal.

The second stage of data collection was direct observation of the provider’s clinical practice. A month after the vignettes were administered, one of the interview team sat with the practitioner for a whole day, recording details of their interaction with each patient.<sup>10</sup> These included some information about the patient such as age, gender, whether s/he was a repeat patient, the number of days sick before seeking treatment for this episode and the symptoms reported. The team also recorded details about the transaction including the number of questions concerning the history of the problem, examinations performed, medicines prescribed and (for the private sector) prices charged. Finally, the medication given (including the names, types and dosage of medicines dispensed or prescribed) was noted. We observed 4,108 doctor-patient interactions for 193 providers, losing 11 doctors from the sample, who participated in the vignettes but refused to allow direct observations.<sup>11</sup> In addition, for cases where the patient presented with diarrhea or cough without fever, the observer noted if the practitioner asked particular questions and performed particular examinations. Since these cases had also been covered in the vignettes, we could directly compare the questions asked or examinations performed in the vignettes to those asked in practice to estimate the gap between competence and practice. For cases of diarrhea, observers noted whether the practitioner asked about vomiting, the nature of the stool and the patient’s history of fever and whether she checked the patient’s temperature. Similarly, for patients presenting with cough without fever, the observer noted whether the practitioner asked about chest-pain, nature of the expectorant and history of fever. In addition, the observer also checked if the practitioner examined the patient’s temperature and blood pressure. These nine tasks (6 questions and 3 examinations) both received high weights in the IRT methodology and were vetted by panels of physicians as critical procedures for any presentation of these two illnesses. From a medical standpoint, the questions allow the provider to distinguish between viral infections that do not require treatment and bacterial infections that do. We observed 978 such interactions and lost observations on another 35 providers who did not see either of these problems in the days visit.<sup>12</sup> For the full set of 4,108 visits we construct an index of “effort-in-practice” (henceforth, EIP) for every provider-patient interaction based on the fi rst principal component of the amount of time spent on each patient, numbers of history questions asked, whether or not a physical exam was done, whether there was

> 10 Originally we expected to have trained physicians do the observations but ran into the ethical problem that physicians would have to intervene if they were to see dangerous practices (not unlikely). This limits our ability to make fi ne distinctions on the quality of clinical care.

> 11 These providers were on average <u>12</u><sup>astandarddeviationlowerincompetencethanothers.Itispossibletherefore,thatthe</sup> results here present an optimistic picture of true effort-in-practice. Provider characteristics for different samples are in Table A1.

> 12 These 35 doctors are no different from the remainder of the sample in observable characteristics, including competence. Details are in Appendix 1.

6
advice on follow-up and medication if prescribed. We exclude the number of medicines given from this index since there is substantial concern over poly-pharmacy and, while spending more time diagnosing and advising patients should clearly increase the quality of care delivered, more medicines may not.

Table 1 shows the relationship between the index and several of its component parts. On average, practice among providers in Delhi is worse than in several other countries. Practitioners spend on average 3.80 minutes per patient. Since the practitioner is the fi rst person that the patient sees in her visit (there is no assistant or nurse in public or private clinics or in the OPD wards of general hospitals), this time is spent on asking history questions (on average 3.2 per patient), performing examinations (63 percent did at least one examination) and prescribing medicines (2.63 different medicines per encounter). Practitioners in Delhi stand on the low side of time spent and on the high side of number of drugs prescribed in accordance with the commonly noted problem of poly-pharmacy in medical practice. The effort-in-practice (EIP) index is fairly good at distinguishing among providers. Those in the lowest tercile of effort spent on average 1.9 minutes with each patient and this increases to 6.15 minutes for those in those in the highest, with similar increases in the number of questions asked (from 1.36 to 5.32) and examinations performed (from 14 percent to 98 percent).<sup>13</sup>

# 2.3 A Summary Description

Four simple fi gures illustrating the basic data motivate much of the subsequent analysis. Figure 1 is the kernel density estimate for public and private providers of effort-in-practice (EIP). Several features stand out. Public doctors exert much less effort than their private counterparts; the steeply peaked modal value for public doctors is a full standard deviation less than the sample average. Interestingly, there is a hint of a second mode at levels of effort slightly higher than average, a characteristic that resonates with our earlier results on competence which recurs throughout the analysis. Private effort is more dispersed but the modal value is slightly higher than the sample mean. Both distributions are skewed to the right. The private cumulative density function (not shown) exhibits fi rst order stochastic dominance over the public though it is hard to tell if it is signi fi cant over the entire range.

Differences in case-mix and severity might account for lower effort in the public sector. Less time with a patient is certainly reasonable if conditions seen in public clinics are much easier to treat and/or less severe than in private. In fact, just the opposite is true: The case mix in public and private venues are almost identical (Figure A1). Further, patients in public clinics are likely to be sicker than those in private, at least as measured by the number of days that symptoms had persisted before the patient sought help–a median of 5 days for private and 7 for public.<sup>14</sup> A second basic characterization of the data is presented in Figure 2. This picture uses the subset of visits (and providers) in which the patient presented with either diarrhea or cough so that we have both the

> 13 We cannot rule out “Hawthorne effects” whereby doctors change their behavior because they knew they were being observed. We feel that, to some extent we mitigated such effects by building a relationship with the providers and hence con fi dence in the anonymity of our survey over a period of time.

> 14 Of course, the argument could go the other way. Serious cases with sudden onset might cause a patient to get treatment more quickly. However, for the types of problems covered in Figure A1, delay in treatment will generally be associated with a worsening of the problem.

7
vignette from the practitioner and his/her actual practice for the very same condition. The graph compares the proportion of critical questions asked/examinations performed in the vignettes to the proportion asked in clinical observation for these two conditions.<sup>15</sup> Several results are notable. First, while the non-MBBS providers knew fewer of the salient questions to ask/examinations to perform than either public or private doctors, they actually did approximately all they knew. Their practice and their competence are closely aligned. For MBBS doctors, however, the gap between what they know and what they do is large: Private practitioners completed only 59 percent of the tasks (questions/examinations) that they know to be important (we know they know through their performance in the vignettes for the same case presentation).

Public sector doctors did less than a third of what they knew to be important. In fact, the non-MBBS providers ended up providing better care on average, by asking more of the salient questions and performing more of the critical examinations than the public MBBS doctors. Clearly incentives are strong for MBBS doctors to do less than they know, and stronger still in the public sector. These results are consistent with the fact that the average vignette for these conditions took about 15 minutes to complete (without real examinations being done) while the average real visit to an MBBS doctor took two minutes in the public and four minutes in the private sectors (inclusive of real physical examinations).

Figure 3 is a decomposition of competence and overall effort by the average income of the neighborhoods that the provider practices in. Among doctors in the public sector, competence is close to, or higher than average. Providers in the private sector are less competent, especially in poor neighborhoods. Patterns of effort are the opposite–private sector practitioners exert effort that is close to or above the average; all public sector providers put in effort that is (far) below average. The reasons for poor delivered care are thus very different. The constraining factor on the quality of medical advice dispensed in low-income areas among private sector providers is low competence and among public sector providers low effort. This difference underscores the importance of decomposing practice-quality variations into variations in competence and variations in The fourth depiction of the data is in Figure 4. Here, for the full sample of doctors for which there is both a competence score and the effort-in-practice index (from visits for any reason, not simply those for cough and diarrhea) we show the non-parametric regression line relating effort to competence.<sup>16</sup> Providers in the private sector are separated by whether they had an MBBS degree or not and, public doctors by whether they practice in a hospital or a clinic. We had no priors as to the shape of this function. Highly knowledgeable doctors may need less time to reach a diagnosis than less competent providers. In that case knowledge and effort would be substitutes and the function would be decreasing. The fi gure clearly shows that knowledge and effort are complementary since the functions are all increasing, and at similar rates for every level of competence.

A second feature is that private doctors with an MBBS degree and public physicians in general hospitals look very similar. It is possible that the private sector puts in a little bit more effort at lower levels of

> 15 To recapitulate, we checked whether the provider asked 6 questions and performed 3 examinations across the two cases. The answers to these questions/examinations would have allowed the provider to distinguish between viral and bacterial cases, thus determining the course of treatment.

> 16 Since non-parametric regressions are unreliable where data is sparse and can be sensitive to the way data at the ends of the data range are handled, we present only the middle 95 percent of the sample, between the fi fth and ninety- fi fth percentiles.

8
competence but since the curves coincide at the high end, they are indistinguishable for at least some range of competence. Third, the private non-MBBS group lines up almost precisely with the MBBS providers. That is, as a function of competence, the degree of effort is unrelated to the type of training the provider has received. Finally, what really stands out is the difference between public doctors in clinics and dispensaries relative to every other type of provider. The amount of time, questions asked, examinations done and advice given is very much lower for public MBBS doctors in primary health clinics than anyone else. This leads us to suspect that the incentive structure–identical for all private providers–is more powerful as an explanation of the effort that providers exert than the quali fi cation (whether MBBS or not) of the provider.

The descriptive fi gures suggest some basic facts, some a little surprising, most fairly consistent with common knowledge. Medical care providers typically do less than what they know, more so for the public than the private sector. Public doctors in primary clinics in particular put in very little effort relative to their private counterparts. Finally, competence and effort appear to be complements and at rates that do not seem to vary much across the institutional affiliation or quali fi cation of the provider.<sup>17</sup> Despite the patterns observed in the raw-data, we need to be cautious in interpreting these correlations. There are observable differences among providers and patients along the public/private and the less competent/more competent dimensions explored in these fi gures (Tables A2 and A3). Doctors in the public sector have practiced in the location they were observed in for fewer years, tend to be female and see more patients every day (almost 3 times as many) than their private sector counterparts. The patients who come to them are more likely be male, repeat clients, and older individuals. The average income of a patient who visits the public sector is lower.

There are fewer observable differences between providers who are more or less competent (although more competent providers tend to be females). However, more competent providers, like the public doctors, see patients who tend to be male, repeat clients and older individuals. Their patients are also richer on average. We need to ensure that these correlations continue to hold once observable differences are accounted for. Further, providers and patients may differ along other, unobserved, dimensions; the next two sections address these issues.

# 3 Simple Behavioral Models with Alternative Market Closure Rules

Potential hypotheses abound, at least for the difference between public and private sectors. Public providers are paid on salary and, at least in clinics, face little monitoring and no sanctions for less than conscientious work. In the out-patient departments of hospitals(all interviews in hospitals were in the out-patient departments), doctors can be more closely monitored and the prestige of working in hospitals can be put in jeopardy for non-performance. Private sectors are paid on a fee-for-service basis and always have an incentive to cater

> 17 Recently, Amartya Sen (The Hindu, 9 January, 2005) characterized the private medical sector in rural areas as full of "quackery and crookery". We only have data on the urban sector but think the phrase might apply just as easily to the public. A measure of "quackery" in the public (non-hospital) sector might be the average value of competence, which is -.5 standard deviations lower than our sample mean (lower than the competence level at which the doctor switches from doing more harm than good (Das and Hammer 2005)). The "crookery" in the public sector might be measured by the difference in the curves at every level of competence between the (non-hospital) doctors and the private sector in Figure 4.

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to the patient in order to ensure repeat business (as eloquently described by Dr. S. in footnote 2). Our observations on the difference between the public and private sector are consistent with a simple explanation relating effort to incentives. We know less (both theoretically and empirically) of the relationship between effort and competence. We present a simple model consistent with the basic facts and then explore what we can say about the observed relationships from a deeper econometric analysis.

We fi rst set up a simple bargaining problem for a single transaction between a practitioner,i, and a patient,j. The problem is de fi ned in terms of payoff functions for the provider and the patient and a production function that relates effort and competence to the quality of care.

1. The Practitioners: The competence of a practitioner, i, is θi. Let practitioner i�s utility be determined by pro fi ts πi net of effort costs for the transaction, so that

We discuss the role of the δ(.) function below.

2. The Patient: Every patient,j, is indexed by vj, which represents the patient’s willingness to pay for quality. Patient j�s utility is her valuation of quality, vjQij, minus the price charged for the transaction.

3. The Production Function: The quality of health care, Qij, depends positively on the doctor’s effort and competence. Assuming multiplicative effects, suggested by the complementarity illustrated in Figure 4, the quality of health-care delivered is effort times competence.

For the private sector, Pij in both the provider and the patient’s pro fi t/utility functions is the price. For the public sector, the interpretation is less clear, but represents the direct transfer from patient to doctor in the transaction. These may include, for instance, under-the-table payments (which we never observed, possibly because we were watching), affirmation of status or expressions of gratitude. Costs to the doctor that are not borne by the patient are captured in the function δ(.). Factors that δ(.) might capture are the degree to which the doctor takes personal satisfaction from the success of the treatment and the degree to which a successful transaction enhances reputation for the development of private practice. This applies to public doctors at least as much as private since many public doctors either anticipate a private practice in the future or are currently engaged in one (even though this is not sanctioned).

We solve for the Nash-bargaining equilibrium of this model. Denoting the bargaining power of the consumer as α, and dropping subscripts, the Nash equilibrium would solve: 10
The solution is given by an effort and a price equation.

and Optimal effort is increasing in competence and the value placed on practice quality by the patient. The price of the transaction increases both in patient valuation and practice-quality, as well as the effort cost of the provider. The degree to which the price lies between the reservation price of the doctor and the patient for the transaction is determined by the strength of the consumer’s bargaining power, α. When α is zero, the doctor extracts all surplus from the interaction, with patient utility also equal to zero. Without worrying about how such bilateral relations would take place in a market, the key expression for e<sup>∗</sup> can be estimated under reasonable hypotheses regarding private non-monetary costs or bene fi ts of provision included to get at δ(.). Under this interpretation, the coefficient on effort should be the value placed on cure by the patient.<sup>18</sup> This basic model illustrates the equilibrium when there is a single doctor and a single patient. To analyze market equilibrium the bilateral model is extended to include two types of doctors, θhigh and θlow and two types of patients vrich and vpoor with vrich > vpoor. For simplicity, assume that α = 0, so that all bargaining power lies with the doctor (results are unaffected by this assumption). The equilibrium is characterized as follows:

- Both vrich and vpoor are indifferent between the two doctors. This follows since they are kept at their reservation utility by both doctors; all differences in the quality provided are fully captured by changes in the price charged.

- Both doctors exert fi rst best effort, but change their effort levels (and their prices) depending on the patient seen. The effort and price equations above are augmented with the appropriate subscripts. In equilibrium,

and equivalently for pair-wise combinations of {low, poor}, {low, rich} and {high, poor}.

- More competent providers continue to exert higher effort and charge higher prices (for both rich and poor patients) than those with less competence.

These results are the analogue of a perfectly price discriminating monopolist–given the assumption of Nash-bargaining, there is no inefficiency in equilibrium. Furthermore, since doctors extract the entire

> 18 This requires the assumption of complementarity of effort and ability that the raw data suggests. A more complex function relating health status change to effort and ability could be assumed but would be harder, perhaps impossible, to estimate. Figure 3, which imposes no a priori restriction on the nature of the function relating effort to competence, does suggest that complementarity is a valid assumption.

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surplus, individuals are indifferent between which doctors they choose. In empirical estimation, embedding the bargaining model into a market suggests the same estimating equations for effort suggested above. It will be a function of competence and the elements of δ(.), though the effect of competence would be a mixture of effects from different types of clients. However, perfect price discrimination implies that we need not worry about patients matching themselves to providers (those with higher values of v choose more competent providers).

## 3.1 The Market with Sorting

A more realistic assumption is that doctors cannot perfectly price discriminate. In this case, it is likely that more competent providers will match with patients with a higher willingness to pay. Their effort levels will thus re fl ect both their competence and the characteristics of their average patient population. Figure 5 illustrates sufficient conditions for such an equilibrium, with the following characteristics (proofs are omitted, but are straightforward).

- θlow earns zero pro fi ts and matches to vpoor.

- θlow provides fi rst best effort.

- To construct the equilibrium for {high, rich}, note that the more competent provider must earn a positive pro fi t; if not, she can always cater only to vpoor and earn strictly positive pro fi ts. Thus, the allocation for the rich will lie on the indifference curve given by AB.

- θhigh may provide fi rst best effort (as Figure 5), or decrease her effort below the fi rst best level to maintain separation in the market. This may happen, for instance, if the tangency between the isopro fi t curve for θhighand the indifference curve for vrich occurs at a point between I1 and I2. Since θlow might prefer to increase her quality to this tangency point, I2 may be preferable for θhigh, even though fi rst best effort is not exerted. The uncertainty around the level of effort of the high quality provider is due to the fact that effort will depend on how many rich people there are–since the doctors will have to split the market if they pool, the degree of specialization is indeed limited by the extent of the market.

In this equilibrium, if efficient effort is achieved by both doctors, these effort levels are identical to the appropriate pair-wise comparison in the previous case. The difference now is that rich patients strictly prefer to match to more competent providers, and poor patients strictly prefer to match to less competent ones. This will affect our interpretation of the estimated coefficient of competence on effort.

# 4 Empirical Estimation

To derive an empirical speci fi cation, consider the linearized version of Equation (5).

(7) 12
Here eij is the effort exerted by the doctor in the interaction between doctor i and patient j. θi is the competence of the practitioner, publici is a dummy variable that indicates whether the doctor is in the public sector, Xi a vector of other observed provider characteristics, and Yj a vector of observed patient characteristics. The error term in the parenthesis consists of the patient’s (unobserved) willingness to pay, vj, an interaction speci fi c error μij and a doctor speci fi c error term εi.

In addition to the effort equation, there is a relationship that speci fi es the structure of matching in the market.

This problem is hard to estimate due to the matching of patients to providers. Since the willingness-to-pay is not observed, it enters in the error term of Equation (7). As discussed above, if the doctor is a perfect price discriminator, patients are indifferent between less and more competent providers (the doctor can extract all surplus) so that σ = 0 in Equation (8) . In this case, the coefficient β1 re fl ects the average valuation of cure as per the bargaining model. In all other cases, we have to worry about matching patients to providers. The matching equation implies that the patient’s willingness-to-pay for quality is correlated with the competence of the provider. The likely direction of this bias is upward as patients with a higher willingness-to-pay will match with more competent providers. The complementarity between effort and competence may be entirely because better doctors see richer patients and effort depends on the price of the transaction.<sup>19</sup> Attributing β2 entirely to incentives in the public sector is also problematic if particular types of providers prefer the public sector. The direction of this bias is difficult to determine–there are arguments that more altruistic doctors or those building up a reputation locate in the public sector, which biases the estimate towards zero (see for instance, Chawla 1997). On the other hand, doctors with higher costs of effort may locate in the public sector, biasing the coefficient upwards.

# 4.1 Interpreting the Relation between Effort and Competence: The Structure of Sorting

To understand how patients match to doctors, we matched household visits to doctors in the parallel household survey to providers in the doctor survey. We completed this matching for all visits over a 2 year period, during which households were administered surveys on a weekly basis for 35 weeks. This data yielded close to 4,000 doctor visits; in 65 percent of these visits, we were able to match the provider visited to a practitioner in our study (recall the sampling scheme gave greater weight to doctors who were visited more). Since all households were administered a consumption-expenditure survey, we then computed the "average income of a patient" as the average income of households matched to providers, weighted by the number of visits over the 2-year period. By construction, the sample of practitioners also includes those who were never visited.

> 19 Our attempt to address the matching issue differentiates this paper from Leonard’s (2005) work. While Leonard (2005) tries to address the selection issue, he does not present a synthesis of how the market operates in equilibrium; as such, it is hard to tell what portion of his results are driven by the selective sorting of patients to doctors. This problem be partially solved with information on patient characteristics. Given the particular environment (crowded urban streets and clinics that consist of a single room open to the outside) both patients and doctors were reluctant to give permission for this exercise and we explore other options for identi fi cation purposes.

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Of the 193 doctors in our sample, we can construct this variable for 141. Fortunately, there are no differences in observable characteristics between these 141 and the full-sample (Table A1).<sup>20</sup> As predicted, richer patients match to more competent providers. The most competent providers see patients who are almost twice as rich as the least competent (Table 2, Column 1 and 2). Public sector doctors see poorer patients and the public-private difference increases with competence. Interestingly, this variation is driven almost entirely by differences across neighborhoods (Table 2, Columns 3-8). There are large differences in the income of patients as we move from poor to rich neighborhoods. Within the same neighborhood more competent doctors do see richer patients, but this difference is much smaller. Better doctors receive richer patients because (on average) they are located in richer neighborhoods.

In a regression context, a one standard deviation increase in the competence of the provider results in patients who come from households with average incomes that are Rs.2,000 (0.34 standard deviations) higher. Moreover, the average income of patients who visit private sector doctors is Rs.3,000 (0.5 standard deviations) higher than those who visit the public sector. However, sorting is driven entirely by differences across localities. Once we control for neighborhood effects, there no evidence of sorting on income by competence (t < 1), although sorting across the public and private sector continues at an attenuated level (the income of the average public sector patient is Rs.2250 lower).<sup>21</sup>

# 4.2 Tackling the Matching Problem

## 4.2.1 Across and Within Neighborhood Comparisons

This suggests two ways of addressing the matching problem. We can either include the average wealth of patients directly in the regression or estimate the equation separately with and without neighborhood fi xed effects. In either case, the theory predicts that the estimated coefficient should decline if providers are particularly responsive to prices, conditional on their location choice. Coefficients from this speci fi cation, with neighborhood fi xed-effects, are robust to the matching problem if location decisions are not correlated to competence and/or do not enter directly into the effort equation. If no different from the OLS estimates, they show that good doctors who choose to locate in poor neighborhoods behave no differently from those who choose to locate in rich areas (or bad doctors who choose to locate in rich neighborhoods behave no differently from those in poor neighborhoods). This may be unrealistic if, for instance, good doctors who locate in poor neighborhoods are more altruistic–in this case, the independent effect of altruism confounds our interpretation of β1.<sup>22</sup>

> 20 Technically, the exercise is valid as long as the there is payoff-equivalence among the doctors visited and not-visited, the market is competitive, and the observed day was random.

> 21 Poor and rich patients visit the same private doctors, conditional on living in the same neighborhood (Das and Hammer 2005b). This could indicate that poor patients are, on average, sicker when they visit the doctor and thus their willingness-to-pay is higher than what their income indicates. All speci fi cations include a full set of patient characteristics (including symptoms reported) as a plausible measure for severity of illness.

> 22 This strategy is similar to that pursued by Ackerberg and Botticini (2002) in their study of agricultural contract choices. As in their study, the maintained assumption is that location decisions are exogenous–this is probably too strong an assumption in urban areas.

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### 4.2.2 Facility Fixed Effects

Our fi nal speci fi cation tackles the matching problem from a different angle. The key to this speci fi cation is the allocation of patients to practitioners in hospitals and smaller clinics. Most private and public sector clinics are manned by a single provider. Thus, when a patient chooses to visit such a clinic, she chooses to match to the provider who staffs the clinic. In contrast, all hospitals are staffed by multiple doctors in the out-patient departments where we observed them. Like most out-patient departments, once a patient chooses to visit the institution, there is no further matching. Patients wait in a single queue and visit the doctor free at the time they come to the front of the line (similar to a queue with multiple counters). When patients visit hospitals they do not count on visiting a particular doctor; consequently within facilities patients are randomly matched to providers.

The relationship between competence and observed patient characteristics within the same facility is consistent with the hypothesis of random matching. In a regression context, a test that observed patient characteristics are correlated to provider competence within facilities is rejected at the 5 percent level and is barely signi fi cant at the 10 percent level. We exploit this "random-matching" component of hospitals by including facility-level fi xed effects in the regression of effort on competence. In comparing effort levels of providers of differing competence who practice in the same facility, we purge the estimated coefficient of biases arising from non-random matching.

## 4.3 Interpreting the Impact of Institutions on Effort

Estimates of β2 from Equation (7) confound the effects of selection into the public sector and the adverse impact of incentives. To some extent, the inclusion of clinical competence as an additional explanatory variable is novel and likely controls for the bulk of the selection effects. In addition to including provider competence, we ensure that our estimates are robust to all observed characteristics of providers and patients, both in regression and more fl exible matching speci fi cations (propensity score matching). This assumes that there is no selection on unobserved variables. An alternate interpretation is that the estimate coefficient re fl ects the joint effect of incentives and selection on unobserved characteristics in the public sector. Table 3 summarizes our empirical strategy and the assumptions required for the estimates to be unbiased in Equation (7).<sup>23</sup>

# 5 Results

Following Table 3, we present results on the relationship between effort and competence and the difference between the public and private sector for three speci fi cations. The fi rst controls for observed doctor and patient characteristics, the second accounts for patient matching by including average patient income or neighborhood fi xed effects and the third accounts for patient matching by including facility fi xed effects.

> 23 We require that competence is strictly exogenous for all the speci fi cations. This may not be true if more motivated/altruistic doctors also seek more training. We are less worried about this source of omitted variable bias, since policy changes that would have to tackle this issue relate to greater training and education for providers. At this point, we stick to the pool of available doctors and look for policies that may affect the distribution of such providers or those that may lead them to exert greater effort-in-practice.

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These three speci fi cations are repeated for each of the following dependent variables. The fi rst, the analog of Figure 1, is a variable that indicates whether the doctors asked each of 6 questions or performed each of 3 examinations for patients presenting with diarrhea or cough without fever. As discussed previously, these 9 items were vetted by experts as critical to the management of such cases and all 9 had been covered in the vignettes. We relate the doctor’s performance in direct clinical observation to performance in the vignettes. Our measure of competence is the probability of asking the question/performing the examination in the vignettes for each provider-question pair and coefficients are reported for both linear and the random effects probit models (see Appendix 1).

Our second dependent variable is the overall measure of effort presented in the Figures 2 and 4. This variable allows us to make comparisons between effort and competence for the entire sample of doctor-patient interactions, but is less precise since we cannot relate performance in the vignettes to performance in practice for the same set of questions and examinations. The measure of competence used here is the competence index based on the full set of vignettes (Das and Hammer 2005).

Finally, turning to a less benevolent aspect of effort, we also estimate the extent of “poly-pharmacy”, measured as the total number of drugs given to the patient.<sup>24</sup> This is important both for the private costs arising from unnecessary expenditure, risk of resistance to drugs in the patient and unpleasant side effects and the distinct social cost of increasing the resistance of infectious agents to fi rst line (relatively cheap) drugs in the population as a whole. This is a major externality.

# 5.1 Ordinary Least Squares and Propensity Score Estimates

The basic description illustrated in the Figures 1,2 and 4 remains once we account for practitioner and patient characteristics (Table 4). Effort increases with competence so that the joint hypothesis of complementarity of effort and competence along with positive valuation of cure is con fi rmed, both for the 9 tasks that were graded on the vignettes and in observation (Panel A) and the more general measure of effort (Panel B). Effort is lower in the public sector after accounting for differential workloads, patient populations and observed provider characteristics. Finally, public hospitals and other public health-care centers continue to differ, with the former performing signi fi cantly better.

Whether hospitals are better or worse than the private sector depends on the dependent variable. For the 9 tasks (Panel A), the performance of hospitals is signi fi cantly worse than the private sector–F-tests of signi fi cance reject equal performance at 1 percent levels of signi fi cance. For the overall measure of effort, there is no difference between hospitals and the private sector, with F-tests accepting the null at 10 percent con fi dence levels. Finally, 2.6 medicines are prescribed on average per encounter; the private sector prescribes between 20 and 25 percent more medicines than public clinics and hospitals. All results are signi fi cant at the 1 percent level.

> 24 The World Health Organization as part of its program on promoting “rational drug use” suggests a number of ways to assess drug prescription practices. The extent of poly-pharmacy is the easiest and most widely used indicator in these studies (WHO 1993).

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Comparing the questions asked in clinical observation to those asked in the vignettes, the preferred speci fi cation suggests that the impact of competence on effort is small (Table 4, Panel A, Column 5). Increasing the probability of performing a task (either a question or an examination) in the vignettes from 0 to 1 increases the probability of the task actually being performed in practice by at most 19 percentage points (estimates vary from 0.16 to 0.19). This increase is offset if the doctor is in the (non-hospital) public sector. Put another way, the probability that doctors will perform critical procedures for these two cases increases by 4 percent when competence increases by 1 standard deviation; the difference between the public and the private sector is almost 4 times as high.

The pattern is similar for the overall effort index (Panel B). An increase of one standard deviation in competence leads to an increase of 0.21 standard deviations in the effort index. Practitioners in the (nonhospital) public sector report effort levels that are almost 0.8 standard deviations lower than their private counterparts. A difference of one standard deviation in competence corresponds closely to the difference between practitioners with and without MBBS degrees (Das and Hammer 2005). The adverse effects of the public sector on effort are almost 4 times as high as the bene fi cial effects of training.

These estimates are robust to a number of controls. Aside from the workload of the practitioner, additional practitioner (quali fi cation, age, experience and gender) and patient (age, gender and symptoms) characteristics have almost no impact on either the estimated coefficient of competence on effort or the estimated difference between the private and public sectors (Columns 1 to 4, Table 4, Panels A and B). In most speci fi cations these additional characteristics are insigni fi cant or mildly signi fi cant (not reported). This suggests that effort is determined primarily by incentives and competence, which act almost like sufficient statistics for the broader set of provider-level characteristics.

More fl exible matching methods yield similar results (Appendix 1). Using propensity score matching techniques, the difference between the public (both clinics and hospitals) and the private sector is close to 0.5 standard deviations of the effort index. The difference between the non-hospital public and the private sector is substantially higher at 0.90 standard deviations, and in fact, is slightly larger than the OLS results suggest.<sup>25</sup> These differences are signi fi cant. The 95 percent con fi dence intervals are [-0.55 to -0.36] for the difference between the public and the private sector, and [-1.00 to -0.78] for the difference between the public (non-hospital) and private sector.

# 5.2 Accounting for Practitioner-Patient Matching

Table 5 repeats these speci fi cations with different checks on matching between practitioners and patients– including average patient income, neighborhood fi xed-effects and clinic fi xed-effects. Panels A, B and C correspond to regression estimates with each of the three dependent variables–performance in practice for the 9 tasks, the general measure of effort, and poly-pharmacy. In each panel, Columns 1 and 2 present the estimated coefficients with the average incomes of patients (Column 1) and neighborhood fi xed-effects

> 25 Different matching techniques including kernel and local linear matching, yield similar results. Imposing a common-support requirement leads to the loss of 53 out of 3,778 observations in comparisons of the public and private sector and no observations in comparisons between the non-hospital public and private sector

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as additional regressors (Column 2). Estimates from a within-clinic speci fi cation are presented in Column 3; here attributes (such as public or private) that do not vary within facilities drop-out of the estimation procedure.

The estimated difference in effort between the private and the public sector is somewhat attenuated (Table 5, Panels A and B, Columns 1,2 and 4) but remains signi fi cant at the 1 percent level. The average income of the practitioner’s patients enters with the expected positive sign, but is small and insigni fi cant in most speci fi cations.

Accounting for practitioner-patient matching has little impact on the estimated relationship between effort and competence (Table 5, Panels A and B, Columns 1,2 and 3). Consistent with the theory, estimates in Panel A suggest some attenuation in the coefficient on competence with little difference across the three alternatives. Surprisingly, there is a small increase in the coefficient on competence for the general measure of effort,although the coefficient is well within the standard-error bounds of other speci fi cations. The estimated coefficient suggests that a one standard-deviation increase in competence leads to a 0.27 standard-deviation increase in clinical effort. The three different ways of accounting for patient matching yield very similar results on the estimated relationship between effort and competence.

Finally, the poly-pharmacy results (Panel C, Table 5) show greater differences in prescribing patterns between the private and public sector when patient-matching is accounted for. Furthermore, richer patients actually receive fewer medications. This is interesting and counter-intuitive since richer patients can pay for more medicines. However, the actual quality of advice may well increase so much for richer patients that this particular form of responsiveness of service to income overcomes the effect via the ability-to-pay.

Practitioners sitting a desk-length apart in the same clinic and facing the same patient population replicate the effort-competence relationship observed in the entire sample. This is puzzling since the model predicts that the estimated impact of competence on effort should decline once matching is properly accounted for. That the coefficient is virtually unchanged regardless of practitioner and patient characteristics as well as corrections for sorting within neighborhoods leads us to believe that it is the location decision of doctors that drives our results. We tend to see doctors developing a "style" of treatment appropriate to the location of their practice and dependent on their own competence but not on the speci fi c characteristics of each patient. Better doctors overwhelmingly locate in richer areas, but for those that are in poorer areas, the relationship between competence and effort is unchanged (Das and Hammer 2005). Future work is needed on determining these decisions–why is it that good non-MBBS providers are in rich neighborhoods if there is no sorting within neighborhoods?<sup>26</sup>

> 26 Less competent providers in richer areas report higher tenures and more competent providers in poorer areas report lower tenures. This is consistent with large transaction costs of changing locations and building up reputations. It is likely that the distribution of competence will continuously improve in richer areas as older (and less competent) providers retire, but young doctors seeking to build a reputation could continue along the same lines: They would start off in poorer areas and then move to richer neighborhoods. The small size of our sample does not permit further investigation.

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# 6 Discussion

Health policy in India is determined by different states (most of which are heavily rural), so any general discussion is limited by the urban nature of the study. There are a couple of clear hypotheses to pursue. First, the typical solution for low-quality service, more training, is unlikely to be effective, particularly given the cost of additional training. The difference in effort between non-MBBS and an MBBS doctor (a difference of up to $8,000 per student in training costs) while signi fi cant, is smaller than the difference between a fully trained MBBS doctor in a public primary health clinic and all other MBBS holders.<sup>27</sup> A difference in conscientious effort is a more likely explanation for the difference between low-quality public and private providers.

We need to look more carefully into the motivations, career path and expectations for doctors at elite public hospitals. The extra visible effort by providers in these institutions may well be associated with closer monitoring and the desire to be retained. However, because effort also increases with competence, a complementary hypothesis may be that doctors in public hospitals are looking for careers in the private sector and are developing reputations.

For the poor who visit low-quality public doctors and even somewhat lower-quality private practitioners, there are few easy solutions. Making public doctors in such areas more responsive to patient needs may be possible through compensation schemes other than fi xed salaries, although both capitation and fee-forservice programs could be corrupted without investments in administration and monitoring. Unfortunately low quality in the private sector cannot be addressed through incentives. The greater use of medications among the private providers suggests that doctors (like most professionals) are sensitive to their patient desires; perhaps overly so. Ways to in fl uence patient expectations regarding drug treatments is a difficult but urgent topic for further research. It could be as simple as public service announcements cautioning against the use of too many drugs or it might be as complicated as improving patients’ abilities to search for reliable and trustworthy care.

More data, a larger sample or a modi fi ed sampling strategy could have addressed the lack of information on patient attributes (matched to practitioner effort) and selection into the public sector. We explored using “standardized patients” (fake patients), who would mitigate the matching problem but discarded this possibility for ethical reasons. Because the doctor would need to be informed prior to sending such patients, it was unlikely that permission to carry on would have been approved. A second option, conducting exit surveys of patients on the day of the observation, turned out to be operationally difficult given the urban scenario and the crowded clinics. Concurrent work in Paraguay implements the matching exit survey (Das and Sohnesen 2005). The preliminary results are very much in line with what we fi nd here–practice patterns vary considerably across doctors, but very little across patients for the same doctor.

The differences between the public and private sector are the joint effects of selection and moral hazard. (altruistic doctors are in the public sector versus lazy doctors are in the public sector). A number of

> 27 MBBS degrees are offered mostly by public institutes where the budget is not itemized. Our fi gure of $8,000 is based on the fee for the MBBS degree in a private institute (Manipal Academy of Higher Education). This overestimates the true cost if governments operate as non-pro fi ts. It underestimates the true cost if (a) efficiency is lower in the government sector and/or (b) the quality of training is higher in the private sector.

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solutions could address this selection problem. With a sufficiently large sample, one could use supply shocks such as hiring freezes to instrument for the choice of sector across different age cohorts. Another alternative is a sampling strategy that exploits dual practices by observing the same doctor in both her public and private practice. This would control for unobserved provider characteristics and better isolate the impact of incentives on performance.

A better understanding of the medical marketplace in low-income countries is critical for policies towards the private sector. Simultaneously, evidence of a more experimental nature on the design and implementation of incentive schemes for public sector doctors and the impact of such schemes on health outcomes would go a long way in addressing a tricky issue.

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