AN INVESTIGATION OF PHYSICIAN-INDUCED DEMAND IN CHINA’S HEALTH CARE SYSTEM: EVIDENCE FROM THE CHARLS

Abstract

Due to the nature of medical treatments, physicians could have a strong influence over the treatment that patients receive. Under a fixed price-setting environment, physicians may influence demand for health services through quantity or quality of their services. Physician-induced demand looks at quantity setting behaviours of physicians under asymmetric information. Few studies have investigated physician-induced demand in China’s health care system. This paper investigates this through studying the ownership and the location of health providers and insurance status of patients; it looks at both inpatient and outpatient care. Using the China Health and Retirement Longitudinal Study national baseline, a nationally representative dataset for people aged 45 years or older, this paper examines whether privately owned or rural health providers treat insured patients more intensively compared with uninsured patients in China. Using a model that controls for patients’ characteristics, I examine high tech tests on a follow-up visit for outpatient care and total length of stay for inpatient care. The results show insured patients who visited a rural or a private health provider on a follow-up visit are more likely to get a high-tech test compared with uninsured patients after controlling for patients’ characteristics. Also insured patients who visited a rural health provider for inpatient care stay longer in the hospital compared with uninsured patients. These results suggest that insured patients get treated more intensively in a rural or private health provider compared with uninsured patients. These might be due to the existence of physician-induced demand in China’s healthcare system.