Survival of altruistic gatekeepers: Kickbacks in medical markets

Abstract Patients often rely on the advice of their general practitioner (GP) to decide which treatment best fits their needs. Hospitals, in turn, might influence GPs’ referral decision through kickbacks. We present a model with a monopolistic hospital and competitive GPs who vary in the degree of altruism towards their heterogeneous patients and show that an equilibrium without crowding out exists that separates GPs into referrers and care providers. Naïve patients visit purely selfish (referring) GPs, while rational patients sort themselves between the two groups of GPs. Finally, we investigate the scope for regulation, including an optimal coinsurance rate.