L5

Question 1

What is the idea behind supplier induced demand (SID)?

Answer 1

A bed built is a bed filled

Question 2

Explain the problem ITO S&D for SID?

Answer 2

Normally, if supply increases, leads to a decrease in price and increase in Q supplied

BUT in HC, an increase in supply squeezes the income of suppliers (lower price) therefore there is an incentive to increase demand to increase the price back to (or above) the original level (tf increasing quantity further!)
This can happen because suppliers can be very influential in this market over quantity demanded (draw diagram!)

Question 3

Solution to SID?

Answer 3

Monitor any increase in supply and check it is followed by a decrease in price

Question 4

When does SID occur?

Answer 4

When the principal-agent relationship (patient-doctor) is exploited; the doctor has an informational advantage and may demand additional HC on behalf of knowledge-poor patient

Question 5

What is the difference between a perfect agent and an imperfect agent?

Answer 5

Perfect agent - dr. gives all info. the patient needs to make a decision, the patient makes the decision and the doctor implements it

Imperfect agent - patient gives all info. the dr needs and dr. makes the decision which the patient implements
(williams 1988)

Question 6

Draw the diagram from Labelle et al. (1994) which shows when SID occurs, and explain examples for each box and which one SID falls under?

Answer 6

Now - see notes

Question 7

What was the main finding of the OECD HC waste and efficiency report 2017? What 3 areas were deemed to be the largest problems to efficiency?

Answer 7

Esimated 20% of HC spending makes no/limited addition to health!

3 areas:

1) unnecessary admissions
2) poor hospital processes
3) delayed discharges

Question 8

See bottom of page 4 diagram in slides

Answer 8

Shows that some countries have HC systems that are more efficient at discharging patients after surgery than others!

Question 9

2 factors that seem to explain inefficiency?

Answer 9

1) Healthcare organisation (poor co-ord., poor quality in primary (at home) care therefore have to stay longer)
2) Payment systems (payment for admission and then per day payments from whoever is covering the cost)

Question 10

Explain how payment systems create inefficiency?

Answer 10

Fee-for-service healthcare: providers are paid for each service, therefore there is a potential for moral hazard! They have an incentive to keep patients in beds until ones can replace them bc. the hospital makes less money if beds are empty (hospitals do not face full cost of the decision!)

Question 11

Explain briefly the target income hypothesis of SID?

Answer 11

The target income hypothesis suggests that a physician is motivated to maintain a certain level of desired income (the target) and if their actual income falls below this level, they will then modify their behavior (ie. induce demand) to restore their income back up to the target

Question 12

Piece of evidence for the target income hypothesis? (2 parts)

Answer 12

In 60s and 70s in the US, was increase in no. of doctors, and prices also increase

Then, to encourage doctors to move to rural areas to practice the gov. decided that those in urban areas should have fixed fees. This led to an increase in HC utilisation in urban areas; doctors were creating demand since they couldn’t raise prices

Question 13

Explain Evans (1974) Disutility of Discretion Model? Where will providers set D&S?

Answer 13

Represents a doctor as a utility maximising provider with function: U=U(Y,W,D) (income, work hrs, discretionary influence) (negative relationship between D and U since feel bad for using it, even though it increases Y)

MB(Y)=MC(W)+MC(D)
When this equates it will be the equilibrium set by providers

Question 14

Explain how a study may test for SID?

Answer 14

Compare an acitivity that may be subject to SID to one that won’t be!

Question 15

2 empirical studies that looked at SID?

Answer 15

1) Hay and Leahy (1982): medical care of HC pros vs non-HC pros
Found no difference between them tf implies no SID

2) Rossiter and Willensky (1983/4): given an increase in HC supply, compared dr-vs-patient initiated visits, found small increase in no of dr initiated visits

Question 16

What did Birch (1988) look at?

Answer 16

Whether complexity of care varies with changes in supply of HC professionals

Question 17

Explain how Birch (1988) studied whether the complexity of care varies with changes in supply of HC professionals?

Answer 17

Used dentistry: have fixed prices tf only can increase income by a) greater volume of procedures, or b) more complex procedures that cost more

Question 18

What did Birch believe should happen when the concentration of dentists increased in a region?

Answer 18

If no SID, then more supply -> less needy patients being drawn into the markets tf avg. content/visit should fall

Question 19

What actually happened when the concentration of dentists increased in a region? (Birch, 1988)

Answer 19

Incentive to upsell procedures as concentration rose, therefore an increase in concentration of 10% was associated with a 2.5% rise in cost per treatment course

Question 20

2 payment systems that may solve SID? and why they may work?

Answer 20

1) Capitation: Dr’s get paid for each patient on their books tf no link between payment and services provided
2) Salary: fixed monthly payment for agreed job tf no link between income and individual services provided

(also maybe a blend of systems?)

Which works best? See panopto and notes for this info (important!)

Question 21

How should policy act to correct the issues discussed?

Answer 21

Should act to minimise perverse incentives

Question 22

Under which system is SID the greatest issue?

Answer 22

fee-for-service

Question 23

On what points can the different systems be evaluated?

Answer 23

Doctor productivity levels
Risk acceptance(?)
Avoidance of unnecessary care
Co-op. between providers
Planning(?)