The ‘gratitude trap’ where Hungarian patients keep falling

As Rothstein argued at length in his book about the problem of social trust, institutions come in many different flavors: explicitly codified law systems, implicitly taken-for-granted exchange arrangements, and so on. Broadly speaking, they all constitute arrangements of some sort for aggregating individuals and regulating their behaviors through the use of (collectively shared) rules. Moreover, they are all necessary to enable a market system: in their absence, as Douglass North (the 1992 winner of the Nobel prize in economics) showed, entering into and upholding the kind of agreements that constitute the foundation of transactions in a market economy would be too costly for any potential party to take the risk.

Under this respect, all institutions do (at least) two things: present incentives, and induce strategies (by making it plausible to calculate what the other agents are likely to do). The problem, which Rothstein’s broad approach certainly did not overlook, is that different institutions may fulfill these two tasks in dramatically different ways. This became immediately clear to me when I realized (by accident, literally speaking) how widespread and yet ill-defined is the rule system governing the invisible market economy flourishing at the margins of the Hungarian state health system.

But first let me quickly introduce the accident that set everything in motion.

Two months ago, I broke my right big toe while running back home. It turned out to be an unfortunate case of avulsion fracture, which required the doctor to manually realign the bone fragments and then drive two wires in my toe to keep the pieces together. Eight weeks passed since the incident, the wires have been removed, and I can finally walk around (sort of) without the need of crutches. But the finger is still far from being properly healed.

This sluggish recovery may be due to a number of reasons, some more worrying than others. But it is hard to tell where my case falls, because, on top of the wide language gap between the surgeon and me (which a Hungarian friend of mine tried to fill at her best), his annoyingly unresponsive attitude made it almost impossible to pull even the most trivial answers out of his mouth.

Each meeting I had with the doctor left me with the same question: why such disregarding shortness of words? Maybe he was upset by the fact that I could not speak a word in Hungarian. Or maybe that was his usual way of dealing with patients. Who knows? While commenting about the surgeon’s attitude, my friend at one point added: ‘maybe it’s because we didn’t give him any extra money’. That was quite a puzzling remark for me, so I asked her to tell me more about it. As she explained, it is common practice in Hungary to give extra fee to the doctor who is treating you (or one of your relatives).

doctor receiving an envelope of cashThe phenomenon is known among social scientists as ‘gratitude payment’, or paraszolvencia. The expression refers to cases where the patient gives money to a state-employed doctor for a provision for which, according to the regulations, the doctor is not entitled to a direct payment. The transaction takes place in a short, but precisely scripted ritual: when the meeting is almost over, the patient hands to the physician an envelope containing money and thanks him with a gratified smile; the physician makes a dismissive gesture, saying that he can’t accept it; the patient begs him to accept; and finally, after a few back and forth, the physician pockets the envelope.

The incidence of this practice is high, to say the least: 8 out of 10 patients routinely give this ‘gratitude money’ to medical personnel, especially in the case of obstetricians and surgeons (whose intervention is presumably most felt by the patient). Similarly tangible are the economic consequences of this practice: on the doctors’ side, if we take the net official income and gratitude money (henceforth, GM) together, the latter amounts to an impressive 62 per cent of the total sum; whereas on the patients’ side, the GM for crucial medical interventions averages 23000 HUF (80 euros circa), which corresponds to half of the net monthly average earning of a lower-income family (see Janos Kornai's paper here).

One way to interpret this practice is to consider the GM a sort of wage supplement, that is, a voluntary contribution aimed at raising the doctor’s total earnings (what tips do for waiters). This may well be the explanation people give when asked about why they engage in this ‘transaction’, but it doesn’t convince me as a reasonable motive from the patient’s side, considering the non-negligible financial sacrifice it represents. However, looking back at the history of paraszolvencia, which dates back to a period before the Second World War, I found something that may explain why people lean toward this wage-supplement interpretation of the GM (excluding the fact that it is, admittedly, the most politically correct and noblest motive a patient would publicly endorse). Its original function was in fact to round up the earnings of the subordinate medical personnel: most of the extra money the physicians collected from private practice was regularly distributed among their assistants (which is incidentally quite the opposite to what happens nowadays, when anesthetists and nurses fall squarely outside the sphere of gratitude payments). Under this reading, the wage-supplement theory may be nothing but a vestigial explanation of practice that changed its function half a century ago.

One other way to interpret the GM (more convincing in my view) is to consider it as a form of bribe: to put it bluntly, a patient pays an extra fee to the physician in order to receive a better service (than non GM-payers). The advantage gained can be anything: a move up in the queue, a shorter period of waiting, a little more attention, or simply a better bed. Parenthetically, the latter case constitutes also a form of what economists call ‘black rent’ – “black” because the patient pays the extra fee for the bed not to the publicly owned hospital, the real “owner” of that resource, but to the doctor, the owner’s employee.

This use of GM began to spread in Hungary during the Kádár period (1956-1988), when the provision and financing of health care became fully nationalized. In this context, the benefit patients sought to receive primarily consisted in the freedom to choose the doctor they preferred – a privilege they were not entitled to, given that the administrative regulations of the time allowed each citizen to consult only the ‘district physician’ of their place of residence. Given the disabling effects of the centralized command economy on the labor market for both parties (since the demand for highly qualified work had little effect on relative wages), doctors became enthusiastic accomplices in supporting the patients’ attempts in detouring these bureaucratic constraints. Tellingly, the financial and health authorities seemed also to amply tolerate this form of ‘shadow economy’ because it was a cheaper solution than raising doctors’ official pay.

More than 20 years passed since the Kadar period, but the basic dynamics of this system of concealed earning didn’t seem to have changed much. This is because, according to Kornai, no intervention of the political sphere targeted the core feature of such bribe-based market, namely, its lack of transparency. To appreciate Kornai’s point, it is worth flashing out the cascading effects that this lack of transparency produces in the market dynamics of healthcare.

Because of the illegal nature of the exchange, the ‘players’ have no incentive to reveal if they are taking part in it and how much they are contributing. In fact, only about a third of the patients have reliable information about what is customary to pay. An obvious drawback of this noise-ridden price assessment is that no convergence on an equilibrium price can ever be reached. Instead, the “buyers” (that is, the patients) bid each other up, ultimately sending the price higher and higher. This is because each new patient who enters the market with a limited set of price information, being unable to check if her known cases of GM are good instances of the standard fee (they may be, in fact, cases of over- or underpayment), can do nothing but take at face value the piece of information at hand and use it to set a reference point to outbid. Forced to rely on this potentially non-representative information about the standard fee (which is treated as corresponding to a temporary equilibrium point between supply and demand), the patients set in motion a perverse-self-fulfilling prophecy, where, by entering the market on the basis of that price information, they contribute to the diffusion of an ill-sorted standard price in the class of traders they belong to, thereby making it more likely for all the other patients to treat that price as the ‘norm’.

The profound effects that lack of transparency has in this kind of market can be easily appreciated by comparing the Hungarian health system to other different formulas in which no cases of ‘shadow transactions’ have been reported. One, for example, is Britain, which has a sternly centralized system, where the state pays the NHS doctors respectable salaries out of taxpayers’ money. Another, and quite opposite to the British strategy, is the (controversial) US system, where it is only the market of private insurers which provides doctors with high salaries as open and commercial incomes. Despite their differences, in both systems the ‘buyers’ can more or less directly know (by seeing how much they are taxed or what kind of premium they have to pay for what cover) what is the price of each service. No such possibility seems to be available in the Hungarian health system.

But is there a way to step outside of this spiraling one-sided competition? Asking the doctors is out of question. They have no reason to refrain from taking the GM because, first, the likelihood that they will be punished is minuscule, and second, they have good reason to doubt that the other doctors will abide by this payoff-diminishing option. As the psychologist John Platt famously showed in 1973, this is the perfect ground for setting a ‘social trap’. If people cannot trust that the other players will cooperate, it is meaningless to choose to cooperate, since the Pareto-efficient outcome can be reached only if the other players contingently converge on the same option. However, at a closer look it is clear that the situation of the Hungarian health system is even worse than that, since it lacks one feature characterizing Platt’s social traps: the symmetry of interests among the players. In fact, from the doctors’ point of view, the payoff-maximizing option consists in keeping the outbidding competition of patients alive and well. They don’t even need to calibrate the quality of their services on the amount of GM transferred (assuming they would be allowed to do that), since the patients would behave anyway as if the doctors are really working under such unethical set of conditionals (according to which the patients will be treated less well then others if they refuse to pay). On the other hand, patients face a similarly paralyzing dilemma. While they all know about the long-term consequences of this informationally opaque market for them, they are not willing to forgo the opportunity of buying extra services for themselves, knowing that the others will not forego the opportunity either.

At this point, it is hopefully clear that, despite everybody knowing that the GM is something ‘outside the books’, still everyone ends up playing according to the customs because of a set of mutual expectations about the lack of a plausible alternative all the players would collectively converge to. Considered in this perspective, Janos Kornai’s plea for a top-down intervention of the political sphere has intuitive appeal. The function of the political body would be not to uproot the system of incentives that fueled this shadow economy, but to make its rules transparent. How? For example, by replacing the gratitude money with extra legal, taxable earning or with private insurances set under commercial conditions. But this, as Kornai himself acknowledges, requires a frank political discourse, which can take over the bland talk of equal access and acquaint the citizens with a hybrid model of social insurance in which ‘it will have to be admitted to the public that the change will increase the inequality of access to health provisions’.

However, until that happens, patients will keep handing plain envelopes to buy their extra care… and foreigners will keep discovering too late that they should have done the same!

Jokes aside, I really hope the doctor didn’t expect me, as a foreigner, to know the rules of this game. It is not exactly the kind of information you can easily find on a travel guide.


  • Guillaume Dezecache 18 May 2013 (19:08)

    Thanks for this brilliant post, Denis!

    That GM thing reminds me of a funny routine that happens in France: around the end of the year, firemen and mailmen knock at your door to sell (ugly) calendars. Folk wisdom holds that if you don’t buy the calendar, firemen will not rush if there is a fire in your house. Similarly, mailmen will be more likely to lose important mail you receive. What is striking is that this belief seems to carry on though it makes complete non-sense. I bet the situation is a bit different as for GM: the physician obviously remembers you and s/he is more likely to act benevolently towards you with a bit of extra money…

  • Denis Tatone
    Denis Tatone 19 May 2013 (16:40)

    This is a comment wrote by Eva Zemandl on Facebook about the article above. I’m copy-pasting it here with her permission.

    “Very well-rounded analysis. A few thoughts. First, I am glad you mentioned nurses in your comment* because in the article you discount this, perhaps unintentionally. I remember my aunt consistently bribing the nurses when my uncle was recovering from a stroke for several months in the hospital. Also, I’ve had many conversations with my family here in Hungary about this, trying to understand the rationale behind this irrational system (I’m originally from the US). I think both motivations could be at play here. I got the impression that, in addition to the bribe, people are still very sensitive to the “wage supplement” aspect. That is, most people I’ve talked to find the wages of doctors and other health care providers rather deplorable. Even if GMs are a considerable expense for my working class family members, they seems to use the wage supplement as a way to render this dysfunctional reality more palatable somehow. I also think there is a third factor at work here – but I think it’s linked to the others. I’ve witnessed situations where doctors behave very condescendingly toward patients or their families, despite a hefty bribe of some 20,000 HUF. Part of that harks back to the days of the socialist regime – when the power of public authorities was unquestioned. As one of my Hungarian friends likes to say about health clinics here: “they just want to make you feel like they still have power over you.” When my aunt and I went to visit my cousin in critical care last year, the doctor didn’t want to give us the time of day. We didn’t give her a tip, but we kept pressing her for answers. I said to her, “is it a virus or a bacteria?” The doctor looked at me like a deer in headlights. I think she was surprised I even knew the difference. She opened up quite a lot to us after that and we never gave her a tip. Finally- and I’ll get off my soapbox – private insurance systems are not necessarily more transparent. The US being a case in point. There is a great (surprisingly) 28-pg TIME article about this, “The bitter pill: why medical bills are killing us.” I’m sue you’d find it relevant. Anyway, thanks so much for posting this!!”

    *This is the comment by me which Eva refers to:

    “I should have also added that, in fact, there is GM directed to nurses when they are perceived as the primary caretakers. Usually this is the case for families having elderly parents in retirement houses.”

  • Radu Umbres 21 May 2013 (23:45)

    Denis, your story strikes a Romanian chord. The situation around here is even worse, from what I can tell. But it is quite a fascinating question, with different answers from different points of view.
    For an economist, it is a matter of price formation. In the state system, Romanian doctors are paid a fixed (and miserable) wage, largely unrelated to quality or effort. The incentive to pocket bribes is huge, and patients know it so well. In the private sector (with transparent and varied prices for medical services), bribes are almost unheard of. Also, there is a more or less efficient market for bribes. Patients find out how much a doctor expects, usually from past patients, or from other doctors. Surgeons receive more than GPs, professors more than debutants, etc.

    But I think there is something more about “medical envelopes”, from a cognitive point of view. First of all, there is a vast asymmetry of competence between doctors and patients, which gives the former a large freedom of action. Is this pill better, or another one? Surgery or not? Home treatment or hospitalisation? To make things worse, the post-hoc reckoning is not very helpful, since most decisions may be medically justified, but you might also end up dead. The patient is at the mercy of the practitioner since she does not know what choices are better. The best way to make sure one gets the proper treatment is to insure the benevolence of the doctor, and a bribe is the simplest path to gain the doctor’s amity.

    Second, there is something special about this particular social exchange: the patient is dealing in an ultimate value – her health. Something everyone in Romania says is that there is no price too high to be healthy. (Paradoxically, giving up smoking somehow does not make the list – self-hint-hint-nudge-nudge). If people would risk not bribing a policeman to avoid a fine, they are extremely unlikely to jeopardise their health in this manner. One cannot afford to stick to abstract principles (like discouraging corruption) when her life is at stake.
    Finally, there is something like a Maussian gift in the affair: one passes a fat envelope even without the explicit mention of an economic exchange. It is not that the surgeon would not operate without being bribed – the patient just shows gratitude without visible economic reckoning. Of course, under the veil of generosity stands the solid self-interest of the patient. The fat envelope is meant to make sure that no scalpel is lost in her belly. But no-one says it out loud. It’s a “I know that you know that I know etc” which makes sure that the transaction is smooth and polite.

    To end with a personal anecdote: I was (and to some extent I still am) very wary of giving out envelopes to doctors. A little bit of moral prudishness, a little bit of fear (what if he feels insulted?), a bit of monetary unsaviness. Those who are more competent in these matters reassured me: “just put the envelope on his desk – he knows what to do next” After all, he is the expert, and I am not.

  • Dan Sperber
    Dan Sperber 23 May 2013 (18:52)

    Tips (to waiters, taxis, etc) are paid (1) because of precedent: if they are customarily given, it is more of a decision not to give rather than to give – with precedents producing an anchoring effect, being stingy in tipping may have reputational costs, and so on (2) because it is a normal part of the income for some professions so tipping may be a moral thing to do (3) because these are professions where typically people can treat customers etc. more or less well, so that a tip may be a sensible investment.

    In the medical case nicely described by Denis, there is the added fact that such tipping is illegal. Any other important difference? We may feel that doctors should treat all patients equally well, but then we should object to private medecine or surgery, and so on when it can fix its prices and offer better services to patients who can pay more. My guess is that even people who don’t object might still see tipping doctors are immoral.

    The general point is this: this case might be best approached within a discussion of tipping in general, a discussion very well worth having from avariety of points of view: cultural, economic, rational choice, reputation, and so on.

    Anyhow Denis, get well soon!