The ‘gratitude trap’ where Hungarian patients keep falling

As Rothstein argued at length in his book [1] 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).

The 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.

[1] Rothstein, B. (2005). Social traps and the problem of trust. Cambridge University Press.