Abstract
We provide a theoretical and empirical framework for evaluating the effects of policy reforms on physician labor supply. We argue that any policy evaluation must account for both the quality and the quantity of services provided. The introduction of quality into the analysis has implications for both the theoretical and empirical analysis of labor supply, and consequently policy evaluation. In particular, endogenous quality choices introduce non-linearities into the budget constraint since the marginal return to an hour of work depends on the quality of services provided. We illustrate by considering a particular example: the recent reform in compensation contracts for specialist physicians in the province of Quebec (Canada). Prior to 1999, most Quebec specialist physicians were paid fee-for-service contracts; they received a piece rate for each clinical service provided. In 1999, the government introduced a mixed remuneration system, under which physicians received a base (half-daily or daily) wage, independent of services provided, and a reduced fee-for-service. Moreover, the government allowed physicians to choose their contract. We derive theoretical results for the effect of the reform on the quantity and quality of services supplied by analyzing "local" prices and virtual income. We propose discretizing the choice set as an empirical approach to policy evaluation in the presence of non-linear budget constraints.
Highlights
In countries where health care is provided in the public sector, contractual design is an important policy tool
Introducing quality into labor supply models leads to non-linearities in the budget constraint
We provide a detailed theoretical analysis of the impact of voluntary switching from FFS to MR on labor supply, with emphasis placed on the impact of the reform on the quantity and quality of health services
Summary
In countries where health care is provided in the public sector, contractual design is an important policy tool. While compensation policies aect the labor supply of physicians, standard labor supply models are generally ill equipped to evaluate the social benets of dierent contracts This is partly due to the multitasking nature of the supply of health services. The opportunity cost of leisure cannot be taken as constant if the value of an hour of work depends on (endogenous) quality These non-linearities complicate both the theoretical and the empirical analysis of the labor supply, and policy evaluation. We develop a theoretical model of physicians' choices regarding the quantity and quality of services provided. We provide a detailed theoretical analysis of the impact of voluntary switching from FFS to MR on labor supply, with emphasis placed on the impact of the reform on the quantity and quality of health services.
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