Supplier Induced Demand Flashcards
Describe the principal-agent problem
In healthcare, the doctor (agent) acts on behalf of the patient (principal). The principals have a lack of knowledge and so cannot guarantee that the agent is acting to maximise the principal’s utility.
However, the agent may be acting to maximise their own utility, and because the principal has imperfect knowledge and so the agent can make choices to maximise their own utility, not the principal’s.
Give examples of papers examining the principal-agent problem.
Nguyen (2011) found that in Vietnam, prescription of injectable drugs was higher in private clinics than public clinics (where doctors have more to gain from drug prescribing), and significantly more drugs were prescribed to those with lower education levels and those who has a secondary education or higher.
What is supplier-induced demand?
When a doctor recommends a medical service that differs from what the patient would have picked if they had the same knowledge as the doctor.
What is consumer sovereignty?
When the consumer holds the power to influence production based on the goods they purchase
What are incentives for the supplier to induce demand?
- To achieve a particular target income
- To enable their research activities
- To ‘fill beds’
Why is it difficult to identify whether demand is supplier induced?
It is difficult to determine exactly if and why demand curves have shifted.
- Changes in price and quantity could be on the same demand curve
- The demand curve could be more elastic than thought.
- Demand could have shifted for reasons other than supplier induced demand.
What are some studies that evidence supplier induced demand?
According to Morris et al. (2012), many early studies focused on demonstrating the positive relationship between the supply of doctors and the demand for medical services.
Van Doorslaer et al (1987) studied physiotherapy referrals in the Netherlands. The GP would refer, but the physiotherapist would choose the treatment. They demonstrated that when a fee schedule and limits on the number of sessions were introduced, more physiotherapists chose the treatments that had the highest fee increase.
Fuchs (1978) found that a greater number of surgeons coincided with greater incidence of surgical procedures.
Leonard (2007) also found in a systematic review that greater physician density was associated with greater service use.
What evidence is there that practitioners respond to financial incentives?
Gottschalk et al (2020) conducted a field experiment in Switzerland using a dental ‘patient’ who did not need any treatment. They found that 28% of dentists recommended overtreatment, and dentists with shorter wait times were more likely to recommend unneccesary treatment.
Doran et al. (2006) found that the NHS GP ‘pay-for-perfomance’ increased service use.
What is evidence that argues that supplier induced demand is not occuring?
Tussing and Wojtowycz (1986) found that GPs in Ireland were more likely to request follow-up appointments in areas with higher GPs per person, and less likely in poorer areas, or where more people are entitled to free care. However, Madden et al. (2005) noted that the visiting rated between free-care and private patients did not change when GPs became paid by capitation (rather than fee-for-service), indicating GPs were not inducing demand from private patients.
