Physician-induced Demand Research Articles

Happy Doctor Makes Happy Baby? Incentivizing Physicians Improves Quality of Prenatal Care

Abstract Physician-induced demand, whereby physicians alter patient treatment for personal gain, lies at the heart of concerns about publicly provided health care. However, little is known about how payment systems affect the ultimate outcome of patient health. Exploiting a unique policy induced variation in Denmark, I investigate the impact of physician payment contracts on infant health. In a difference-in-differences framework, I find that firstborn infants exposed in the womb to the care of general practitioners with capitation contracts have poorer infant health outcomes than infants exposed to fee-for-service contracts. The firstborn children of younger women primarily drive the effects.

Mind the information gap: fertility rate and use of cesarean delivery and tocolytic hospitalizations in Taiwan.

BackgroundPhysician-induced demand (PID) is an important theory to test given the longstanding controversy surrounding it. Empirical health economists have been challenged to find natural experiments to test the theory because PID is tantamount to strong income effects. The data requirements are both a strong exogenous change in income and two types of treatment that are substitutes but have different net revenues. The theory implies that an exogenous fall in income would lead physicians to recoup their income by substituting a more expensive treatment for a less expensive treatment. This study takes advantages of the dramatic decline in the Taiwanese fertility rate to examine whether an exogenous and negative income shock to obstetricians and gynecologists (ob/gyns) affected the use of c-sections, which has a higher reimbursement rate than vaginal delivery under Taiwan's National Health Insurance system during the study period, and tocolytic hospitalizations.MethodsThe primary data were obtained from the 1996 to 2004 National Health Insurance Research Database in Taiwan. We hypothesized that a negative income shock to ob/gyns would cause them to provide more c-sections and tocolytic hospitalizations to less medically-informed pregnant women. Multinomial probit and probit models were estimated and the marginal effects of the interaction term were conducted to estimate the impacts of ob/gyn to birth ratio and the information gap.ResultsOur results showed that a decline in fertility did not lead ob/gyns to supply more c-sections to less medically-informed pregnant women, and that during fertility decline ob/gyns may supply more tocolytic hospitalizations to compensate their income loss, regardless of pregnant women's access to health information.ConclusionThe exogenous decline in the Taiwanese fertility rate and the use of detailed medical information and demographic attributes of pregnant women allowed us to avoid the endogeneity problem that threatened the validity of prior research. They also provide more accurate estimates of PID.JEL Classification: I10, I19, C23, C25

Geographic variations in health care utilization: effects of social capital and self-interest, and implications for US Medicare policy

This paper applies social capital analysis to the geographic variations in health care utilization documented by the Dartmouth Atlas project. The paper proposes a typology of social capital effects on behaviour relevant to health policy, including a dimension of interpersonal transactions in which strict adherence to a duty to others may be overcome by a measure of selfishness. The paper examines the concept of physician-induced demand through this lens, hypothesizing that regions with low social capital will have a higher intensity of health care resource utilization. A series of regressions employing indicators of intensity is presented to illustrate a likely link between social capital and utilization. The paper concludes that, while other effects of social capital may explain geographic variations, there appears to be enough circumstantial evidence of opportunistic behaviour by physicians to justify consideration of more rigorous physician payment policies in the US Medicare programme.

Does Treatment Respond to Reimbursement Rates? Evidence from Trauma Care

Some models of provider behavior predict that physicians, like other experts, may respond dysfunctionally to financial incentives by recommending unnecessary treatment. We empirically test this relationship using data from inpatient hospitalizations surrounding a 2003 Colorado auto insurance reform. The reform shifted a large fraction of auto injury patients from coverage through auto insurers to less generous sources of reimbursement, such as health insurance and self-pay. Despite negligible changes in auto injury characteristics during this period, treatment supply increased following the reform. Procedure use rose by 5-10% and billed charges rose by 5%, and these increases are specific to auto but not other types of traumatic injury. These changes appear to reflect an increase in real resources devoted to treatment, but do not improve mortality outcomes. Our findings are consistent with models of physician-induced demand.

Health Insurance Status and Physician-Induced Demand for Medical Services in Germany: New Evidence from Combined District and Individual Level Data

Germany is one of the few OECD countries with a two-tier system of statutory and primary private health insurance. Both types of insurance provide fee-for-service insurance, but chargeable fees for identical services are more than twice as large for privately insured patients than for statutorily insured patients. This price variation creates incentives to induce demand primarily among the privately insured. Using German SOEP 2002 data, I analyze the effects of insurance status and district (Kreis-) level physician density on the individual number of doctor visits. The paper has four main findings. First, I find no evidence that physician density is endogenous. Second, conditional on health, privately insured patients are less likely to contact a physician but more frequently visit a doctor following a first contact. Third, physician density has a significant positive effect on the decision to contact a physician and on the frequency of doctor visits of patients insured in the statutory health care system, whereas, fourth, physician density has no effect on privately insured patients' decisions to contact a physician but an even stronger positive effect on the frequency of doctor visits thanthe statutorily insured. These findings give indirect evidence for the hypothesis that physicians induce demand among privately insured patients but not among statutorily insured.

The U.S. Physician Workforce: Serious Questions Raised, Answers Needed

In this issue, Cooper argues that the United States will have 200 000 fewer physicians than needed in 2020. Demographic and economic trends could increase the demand for physician services, but his...

The effects of a patient shortage on general practitioners? future income and list of patients

The literature on physician-induced demand (PID) suffers from an inability to distinguish between the effect of better access and the effect of patient shortage. Data from the Norwegian capitation trial in general practice give us an opportunity to make this distinction and hence, study whether service provision by physicians is partly income-motivated. In the capitation trial, each general practitioner (GP) has a personal list of patients. The payment system is a mix of a capitation fee and a fee for service. The data set has information on patient shortage, i.e. a positive difference between a GP’s preferred and actual list size, at the individual practice level. From a model of a GP’s optimal choice we derive the GP’s optimal practice profile contingent on whether the GP experiences a shortage of patients or not. To what extent GPs, who experience a shortage, will undertake measures to attract patients or embark on a service-intensive practice style depends on the costs of the various measures relative to their expected benefit. The model classifies GPs into five types. In the empirical analysis a panel of GPs is followed for 5 years. Hence, transitory effects should have been exhausted. We show that GPs who experience a shortage of patients have a higher income per listed person than their unrationed colleagues.

The effects of a patient shortage on general practitioners’ future income and list of patients

The literature on physician-induced demand (PID) suffers from an inability to distinguish between the effect of better access and the effect of patient shortage. Data from the Norwegian capitation trial in general practice give us an opportunity to make this distinction and hence, study whether service provision by physicians is partly income-motivated. In the capitation trial, each general practitioner (GP) has a personal list of patients. The payment system is a mix of a capitation fee and a fee for service. The data set has information on patient shortage, i.e. a positive difference between a GP’s preferred and actual list size, at the individual practice level. From a model of a GP’s optimal choice we derive the GP’s optimal practice profile contingent on whether the GP experiences a shortage of patients or not. To what extent GPs, who experience a shortage, will undertake measures to attract patients or embark on a service-intensive practice style depends on the costs of the various measures relative to their expected benefit. The model classifies GPs into five types. In the empirical analysis a panel of GPs is followed for 5 years. Hence, transitory effects should have been exhausted. We show that GPs who experience a shortage of patients have a higher income per listed person than their unrationed colleagues.

Fixed fees and physician-induced demand: a panel data study on French physicians.

This paper investigates on the existence of physician-induced demand (PID) for French physicians. The test is carried out for GPs and specialists, using a representative sample of 4500 French self-employed physicians over the 1979-1993 period. These physicians receive a fee-for-services (FFS) payment and fees are controlled. The panel structure of our data allows us to take into account unobserved heterogeneity related to the characteristics of physicians and their patients. We use generalized method of moments (GMM) estimators in order to obtain consistent and efficient estimates. We show that physicians experience a decline of the number of consultations when they face an increase in the physician:population ratio. However this decrease is very slight. In addition, physicians counterbalance the fall in the number of consultations by an increase in the volume of care delivered in each encounter. Econometric results give a strong support for the existence of PID in the French system for ambulatory care.

Subspecialty Work Force Issues

Letters15 May 1995Subspecialty Work Force IssuesLewis G. Sandy and Steven A. SchroederLewis G. SandyFor the Association of Subspecialty Professors, Philadelphia, PA 19104. The Robert Wood Johnson Foundation, Princeton, NJ 08543-2316.Search for more papers by this author and Steven A. SchroederFor the Association of Subspecialty Professors, Philadelphia, PA 19104. The Robert Wood Johnson Foundation, Princeton, NJ 08543-2316.Search for more papers by this authorAuthor, Article, and Disclosure Informationhttps://doi.org/10.7326/0003-4819-122-10-199505150-00026 SectionsAboutFull TextPDF ToolsAdd to favoritesDownload CitationsTrack CitationsPermissions ShareFacebookTwitterLinkedInRedditEmail IN RESPONSE:We applaud the Association of Subspecialty Professors' continued commitment to addressing subspecialty work force issues. The Association continues to voice skepticism over existing work force projections and prefers need-based modeling. However, decades of research have been devoted to the study of physician-induced demand [1, 2], highlighting the instability of population “need.” Moreover, the number of physicians required for any population's “need” is sensitive to population and organizational factors, such as service regionalization.Although we agree with the Association that the United States is headed towards an excess of physicians in aggregate, existing projections estimate that the bulk of ...

Physician-induced demand for childbirths

A controversial technique for testing the hypothesis that physicians induce demand involves two stage least squares (TSLS) regression analysis of cross-section data on physician supply and utilization. This paper tests the power of TSLS by applying it where there is at most only a trivial amount of demand inducement — the demand for childbirths. We find ‘evidence’ of inducement of childbirths, calling into question the validity of the TSLS approach. This unlikely finding may be traced to at least two factors: The first stage regression is not identified and the second stage regression does not adequately address border crossing.

歯科医療費の地域格差に関する研究 Ｉ． 年齢群別特徴と要因分析

The dental care expenditure of 108 municipalities in Niigata prefecture in 1990 was analyzed by cross-sectional. The subjects were persons coverd by National Health Insurance. The analysis was carried out in each age group on the basis of municipalities. The indices used in this study were the dental care expenditure per person and three factors of the dental care expenditure (the dental care rate, the average length of treatment days per dental receipt and the dental care expenditure per day).The persons coverd by National Health Insurance were 31.3% of whole age group. This rate was higher in the older group (over 60 years of age) than the younger group.The dental care expenditure per person increased up to age group of 60-69 in relation to increasing age and decreased in the age group above 70 of age, but in the age group of 5-9 the expenditure was exceptionally high.The dental care rate was highly correlated with the dental care expenditure per person. The regional difference in the dental care rate was highest in the three factors.The factors which influence dental care expenditure were analyzed by multiple regression analysis. The results showed that the number of dentists had a positive influence in almost all age groups, and that per capita income had a positive influence in infants and the old, and that caries prevalence in permanent teeth had a very positive influence in the age groups of 5-9 and 10-19. There was no correlation between caries prevalence in deciduous teeth and the dental care expenditure.To ascertain the “physician-induced demand theory” a multiple regression analysis was carried out by using the dental care expenditure per dental receipt as a criterion variable. The result showed that the number of dentists did not influence the dental care expenditure per dental receipt.

Professional uncertainty and physician medical decision-making in a multiple treatment framework

This paper develops a new microanalytic approach to physician medical decision-making treatment setting. Physician medical decision-making is modelled as a two-stage sequential process. In Stage 1, the patient's illness is diagnosed and the health outcomes for all illness-related restoration options are identified. In Stage 2, an “optimal” restoration option is selected. This model provides new insights into physician medical decision-making and the complexity of proving physician-induced demand in a medical care market where professional uncertainty and consumer heterogeneity exist.

Demand inducement and the physician/patient relationship.

The physician/patient relationship is a paradigm for any expert/client relationship. The physician both diagnoses the patient's illness and recommends a treatment. This dual role gives the physician incentive to recommend treatments whose costs outweigh their medical benefits. These socially inefficient treatments correspond to the notion of "physician-induced demand." The level of inducement chosen by the physician is shown to depend on the price and potential medical benefits of treatment and the relative diagnostic skills of physician and patient. This model offers several testable hypotheses, some of which are confirmed by related studies.

A further analysis of the physician inducement controversy

This article extends several recent contributions that have compared the physician-induced demand hypothesis to the theory of a monopoly where advertising is included as a decision variable. By introducing a standard profit-maximizing model with inducement, it derives the conditions for the optimum level of inducement to show that the controversy over inducement is directly related to the elasticity of demand for the physician's services. In particular, inducement is likely to be prevalent only where the individual physician has a high degree of monopoly power as measured by its elasticity of demand. It will disappear entirely as competitive conditions are approached. Furthermore, the article argues that a physician's level of induced output is likely to diminish, and not increase as others have suggested, following increases in physician supply.

A Clarification of Theories and Evidence on Supplier-Induced Demand for Physicians' Services

This article both simplifies and extends the literature on physician-induced demand. It shows that inducement should be expected in all imperfectly competitive markets that are also characterized by incomplete agency relationships. More important, it argues that confusion over the extent of the inducement phenomenon has been created by several contributions that fail to distinguish between the effects of changes in physician-population ratios on changes in the individual physician's output, and the effects on per-capita utilization. In particular, it demonstrates that, by confounding units of analysis, the major empirical results found in recent articles by Rossiter and Wilensky are contradicted by their model. Their evidence, however, together with findings from other studies, are reinterpreted to suggest that physicians are even more constrained, than is generally believed, in being able to induce increases in demand.

Health Economist-Induced Demand for Theories of Physician-Induced Demand

Health Economist-Induced Demand for Theories of Physician-Induced Demand

Physician-induced demand for surgery

Following up the earlier findings by Fuchs on surgeon-induced demand, this paper makes numerous data and econometric improvements in conducting a test of neoclassical and inducement theories. A simultaneous equation model is used to estimate physician demand and equilibrium fees for surgery from a sample of 350 PSUs over the 1969–1976 period. The results provide definite support for the notion of competitive market failure — particularly in large metropolitan areas. Other things equal, fees and utilization are higher in surgeon-rich areas although our estimated shift elasticities were only about one-third those found by Fuchs. A statistically significant, albeit small price elasticity of demand for surgery was also obtained, in contrast to Fuchs. Increasing monopoly and disequilibrium models are also tested without altering the basic findings. Where surgeons were in short supply, their availability significantly affected surgery rates, although a small supply effect was found in plentiful areas as well.

Physician-induced demand by Irish GPs

Approximately one-third of the Irish population receive all medical care services free. GPs (general practitioners) treat both public and private patients, and are remunerated on a fee-for service basis by the state for public patients, and by the patient, at a higher rate, for private patients. In 1981, the first author conducted a national survey of Irish medical care utilization, asking whether patients' most recent GP visits resulted in a return visit being arranged. This measure of self-referral by GPs is significantly and strongly associated with the ratio of GPs to population, and negatively with the ratio to population of persons eligible for free services, and with area per capita income. All three results are as hypothesized from a theoretical model, and point to significant self-interested physician-induced demand by Irish GPs.

Testing for physician-induced demand with hypothetical cases.

It has been hypothesized that there is more demand creation by doctors in high physician density areas. Empirical tests of actual utilization have had difficulties accounting for potential confounders, particularly possible differences in the health status of diverse populations. To eliminate that problem, physicians were presented with identical, hypothetical medical cases. Actual physician density was significantly and positively correlated with the aggressiveness of proposed treatment, holding constant other physician characteristics. This result lends support for the hypothesis of demand-inducement.