Lecture 19 - 11/11/99

Market for Physicians’ Services

• Overview:Start with Phelps, Chapter 7

Figure II-11-3
 

3 topics in Chapter 7

• Physician location: Will an increase in physician supply lead to improvements in the geographic distribution of physicians?
• How do people search for physicians?
• Asymmetric information between patients and their physicians, target income hypothesis and and supplier-induced demand: I will start with this topic

How is market for physicians’ services distinctive?

• Patients don’t seem to be knowledgeable--at least not as knowledgeable as their physicians
• Increase in physician supply leads to increased use of physicians’ services
• Increase in physician supply leads to higher not lower fees in some studies
• Not much decrease in income per physician as physician-population ratio increases

• Idea of induced demand not limited to medical care. Apply to automobile repair?
• Idea started with Roemer’s Law (1961)
• Lots of debate among economists. If inducement occurs, limit to its extent; limit exists because of physician guilt, effort involved, or consumers not that easily duped and may be bad for physician rep. (Dranove)

• Get overtreatment under fee-for-service system
• Get undertreatment under HMOs
• Other implications: bad to control physician fees; put ceilings on enrollments in medical schools; keep FMGs out

• Physicians have considerable discretion to increase demand for services because a) patient ignorance and b) technological uncertainties
• In areas of greater MD supply, physicians maintain income by raising fees and/or by increasing utilization (e.g., asking patients to return for a revisit)

• Graphs