Modeling Cross-Border Care in the EU Using a Principal-Agent Framework

Abstract

Cross-border care is likely to become a major issue among EU countries because patients have the option of obtaining treatment abroad under Community Regulations 1408/71. This paper develops a model formalizing both the patient’s decision to apply for cross-border care and the authorizing physician’s decision to admit a patient to the program. The patient is assumed to maximize expected utility, which depends on the quality of care and the length of waiting in the home country and the host country, respectively. Not all patients qualifying for the EU program present themselves to the authorizing physician because of the transaction cost involved. The physician in her turn shapes effective demand for authorization through her rate of refusal, which constitutes information to potential applicants about the probability of obtaining treatment abroad. The authorizing physician thus acts as an agent serving two principals, her patient and her national government, trading off the perceived utility loss of patients who are rejected against her commitment to domestic health policy. The model may be used to explain existing patient flows between EU countries.

Much of the initial stimulus for this research came from the participants of the Concerted Action “Health Care Financing and the Single European Market,” contract number BMHI-CT92-0740. Errors are our own.