Lecture 8 - Physician Agency Flashcards
What do patents encourage?
Innovation - esentially act as a monopolist during that period so they can charge more
How can brands differentiate their products?
- higher quality
- advertising
- branding
- patents
- reputation
Give some examples of product differentiation
- Bananas: organic more expensive, trust that organic label means it is somehow better, all Canedish bananas are genetically identical
- Apirin: lots of different packages, branded are more expensive though formula is identical
- Tamiflu: fear of influencze pandemic so countries bought up Tamiflu which was patented at the time, but it may not have been effective. Licensed to Roche by Gilead Sciences. Donald Rumsfeld was on the board of Gilead Sciences and when he was the US secretary of defence refused to sell his GS stocks and made estimated $5
- US hospitals: Mayo clinic, Johns Hopkins, Cleavland Clinic all spend lots of money on building brand, good reputation, charge more
What are some costs that can be incurred by new entrants into the healthcare industry?
- Training costs for medical students
- Restrictions on where to open premises for GPs and pharmacists
- Restrictions on building new hospitals
- Difficulties closing new hospitals/moving
- High cost of R&D in pharma
What are credence goods?
Good with qualities that cannot be observed by the consumer after purchase, making it difficult to assess utility
Why is healthcare a credence good?
- prices do not provide accurate signals of value
- complex; medical knowledge needed
- uncertainty; no 1 to 1 relationship between inputs (treatment) and outputs (health status)
What is an agency relationship?
Relationship/contract between a principal (patient) and the agent (doctor), agent acts on principal’s behalf
What is a perfect agent?
Acts completely in principal’s best interest, dow that a fully informed principal would have done
What might lead physicians to be imperfect agents?
- interests in income
- effort
- limited time
- dual agency (multiple patient)
What is supplier induced demand in the context of healthcare?
When a physician influences a patient’s demand for care against the physician’s interpretation of the best interests of the patient
This is possible because the physicians have more info
What happens to the demand curve under supplier-induced demand? Why?
- Moves to the upper right
- If the physician can increase demand then they can maintain price when quantity increases
See notes for graphs
What is useful agency?
When the physician guides the patient to the level of treatment that the individual would have chosen if they had the same knowledge/info as the physician
Gruber and Owings (1996)
- Examined the impact of declining fertility rates (demand) on behaviour of gynocologists in the US
- Exploited state-level variation in fertility and Caesarean rates
- 10% drop in fertility (demand) let to a 0.6% increase in Caesarean births
- May indicate supplier induced demand since doctors get paid more for Caesarean births
Yip (1998)
- Examined the change in Medicare fees by undertaking a longitudinal panel study
- Found that Medicare fee cuts would have led to a 26% drop in income for cardiothoracic surgeons
- But surgeons increased coronary artery bypass grafting (CABG) activity and recouped 70% of lost income
- Those with greates income drop increased activity the most
Why is it hard to research supplier-induced demand? How can it be studied better?
- evidence is circumstantial
- To make better, examine exogenous change to identify causal effect
