The Rising Price of Physician's Services
About: This article is published in The Review of Economics and Statistics.The article was published on 1970-05-01. It has received 223 citations till now.
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Book•
29 Jan 1993
TL;DR: This book discusses the production, cost, and technology of health care, as well as the role of government intervention in health care markets and other topics.
Abstract: Chapter 1: Introduction Chapter 2: Microeconomic Tools for Health Economics Chapter 3: Statistical Tools for Health Economics Chapter 4: Economic Efficiency and Cost Benefit Analysis Chapter 5: Production of Health Chapter 6: The Production, Cost, and Technology of Health Care Chapter 7: Demand for Health Capital Chapter 8: Demand and Supply for Health Insurance Chapter 9: Consumer Choice and Demand Chapter 10: Asymmetric Information and Agency Chapter 11: The Organization of Health Insurance Markets Chapter 12: Managed Care Chapter 13: Nonprofit Firms Nonprofit Firms Chapter 14: Hospitals and Long-term Care Chapter 15: The Physician's Practice Chapter 16: Health Care Labor Markets and Professional Training Chapter 17: The Pharmaceutical Industry Chapter 18: Equity, Efficiency and Need Chapter 19: Government Intervention in Health Care Markets Chapter 20: Government Regulation: Principal Regulatory Mechanisms Chapter 21: Social Insurance Chapter 22: Comparative Health Care Systems and Health System Reform Chapter 23: Health System Reform Chapter 24: The Health Economics of Bads Chapter 25: Epidemiology and Economics: HIV/AIDS in Africa
833 citations
TL;DR: The anatomy of health insurance can be found in this article, where the authors consider the optimal design of a health insurance policy that makes tradeoffs appropriately between risk sharing on the one hand and agency problems such as moral hazard and supplier-induced demand on the other.
Abstract: This article describes the anatomy of health insurance. It begins by considering the optimal design of health insurance policies. Such policies must make tradeoffs appropriately between risk sharing on the one hand and agency problems such as moral hazard (the incentive of people to seek more care when they are insured) and supplier-induced demand (the incentive of physicians to provide more care when they are well reimbursed) on the other. Optimal coinsurance arrangements make patients pay for care up to the point where the marginal gains from less risk sharing are just offset by the marginal benefits from reduced provision of low valued care. Empirical evidence shows that both moral hazard and demand-inducement are quantitatively important. Coinsurance based on expenditure is a crude control mechanism. Moreover, it places no direct incentives on physicians, who are responsible for most expenditure decisions. To place such incentives on physicians is the goal of supply-side cost containment measures, such as utilization review and capitation. This goal motivates the surge in managed care in the United States, which unites the functions of insurance and provision, and allows for active management of the care that is delivered. The analysis then turns to the operation of health insurance markets. Economists generally favor choice in health insurance for the same reasons they favor choice in other markets: choice allows people to opt for the plan that is best for them and encourages plans to provide services efficiently. But choice in health insurance is a mixed blessing because of adverse selection – the tendency of the sick to choose more generous insurance than the healthy. When sick and healthy enroll in different plans, plans disproportionately composed of poor risks have to charge more than they would if they insured an average mix of people. The resulting high premiums create two adverse effects: they discourage those who are healthier but would prefer generous care from enrolling in those plans (because the premiums are so high), and they encourage plans to adopt measures that deter the sick from enrolling (to reduce their overall costs). The welfare losses from adverse selection are large in practice. Added to them are further losses from premiums that vary with observable health status. Because insurance is contracted for annually, people are denied a valuable form of intertemporal insurance – the right to buy health coverage at average rates in the future should they get sick today. As the ability to predict future health status increases, the lack of intertemporal insurance will become more problematic. The article concludes by relating health insurance to the central goal of medical care expenditures – better health. Studies to date are not clear on which approaches to health insurance promote health in the most cost-efficient manner. Resolving this question is the central policy concern in health economics.
540 citations
TL;DR: The first part of the paper develops and estimates a structural equation for the demand for health care and then examines the dynamic interaction between the purchase of insurance and the demand and supply for health Care.
Abstract: American families are in general overinsured against health expenses. If insurance coverage were reduced, the utility loss from increased risk would be more than outweighted by the gain due to lower prices and the reduced purchase of excess care. The first part of the paper develops and estimates a structural equation for the demand for health care and then examines the dynamic interaction between the purchase of insurance and the demand and supply for health care. The second part estimates the welfare gains that would result from decreasing insurance by raising the average coinsurance rate from 0.33 to 0.50 and 0.67 percent. The most likely values imply net gains in excess of $4 billion.
511 citations
Posted Content•
TL;DR: In this article, a multi-equation multivariate analysis of differences in the supply of surgeons and the demand for operations across geographical areas of the United States in 1963 and 1970 is presented.
Abstract: This paper presents a multi-equation multivariate analysis of differences in the supply of surgeons and the demand for operations across geographical areas of the United States in 1963 and 1970. The results provide considerable support for the hypothesis that surgeons shift the demand for operations. Other things equal, a 10 percent increase in the surgeon/population ratio results in about a 3 percent increase in per capita utilization. Moreover, differences in supply seem to have a perverse effect on fees, raising them when the surgeon/population ratio increases. Surgeon supply is in part determined by factors unrelated to demand, especially by the attractiveness of the area as a place to live.
318 citations
TL;DR: In this paper, the authors present a multiequation, multivariate analysis of differences in the supply of surgeons and the demand for operations across geographical areas of the United States in 1963 and 1970.
Abstract: This paper presents a multiequation, multivariate analysis of differences in the supply of surgeons and the demand for operations across geographical areas of the United States in 1963 and 1970. The results provide considerable support for the hypothesis that surgeons shift the demand for operations. Other things equal, a 10 percent increase in the surgeon/population ratio results in about a 3 percent increase in per capita utilization. Moreover, differences in supply seem to have a perverse effect on fees, raising them when the surgeon/population ratio increases. Surgeon supply is in part determined by factors unrelated to demand, especially by the attractiveness of the area as a place to live.
312 citations
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Journal Article•
TL;DR: In this article, the authors focus on the way in which the operation of the medical-care industry and the efficacy with which it satisfies the needs of society differ from a norm, and the most obvious distinguishing characteristics of an individual's demand for medical services is that it is not steady in origin as, for example, for food or clothing but is irregular and unpredictable.
Abstract: Publisher Summary This chapter focuses on the way in which the operation of the medical-care industry and the efficacy with which it satisfies the needs of society differ from a norm. The term norm that the economist usually uses for the purposes of such comparisons is the operation of a competitive model, that is, the flows of services that would be offered and purchased and the prices that would be paid for them. The interest in the competitive model stems partly from its presumed descriptive power and partly from its implications for economic efficiency. If a competitive equilibrium exists at all and if all commodities relevant to costs or utilities are in fact priced in the market, then the equilibrium is necessarily optimal. There is no other allocation of resources to services that will make all participants in the market better off. The most obvious distinguishing characteristics of an individual's demand for medical services is that it is not steady in origin as, for example, for food or clothing but is irregular and unpredictable. Medical services, apart from preventive services, afford satisfaction only in the event of illness, a departure from the normal state of affairs.
3,500 citations
TL;DR: In this article, the authors argue that if many doctors engaged in such price policies, a pattern of prices for medical services would be established that would be independent of the incomes of patients.
Abstract: M ANY disinguished economists have argued that the medical profession constitutes a monopoly, and some have produced evidence of the size of the monopoly gains that accrue to the members of this profession.' Price discrimination by doctors, i.e., scaling fees to the income of patients, has been explained as the behavior of a discriminating monopolist.2 Indeed this has become the standard textbook example of discriminating monopoly.3 However this explanation of price discrimination has been incomplete. Economists who have subscribed to this hypothesis have never indicated why competition among doctors failed to establish uniform prices for identical services. For any individual doctor, given the existing pattern of price discrimination, income from professional services would be maximized if rates were lowered for affluent patients and increased for poor patients. However, if many doctors engaged in such price policies, a pattern of prices for medical services would be established that would be independent of the incomes of patients. Yet despite this inconsistency between private interests and the existing pattern or structure of prices based on income differences, this price structure has survived. Is this a contradiction of the law of markets? Why is it possible to observe in a single market the same service sold at different prices? The primary objective of this paper, which is an essay in positive econom-
251 citations
TL;DR: The author concludes that the authors will indeed face a shortage of doctor services and, although he calls his book an economic diagnosis, he does not shrink from prescribing several means of dealing with the problem.
Abstract: Dr. Fein's book projects the future demand for physicians' services and the future supply. He uses both 1975 and 1980 as dates for the projection. He concludes that we will indeed face a shortage of doctor services and, although he calls his book an economic diagnosis, he does not shrink from prescribing several means of dealing with the problem. These include the growth of group practice and the greater use of auxiliary personnel including assistant physicians-both as ways of achieving greater productivity of the doctor-and he does not overlook the role of financing. Dr. Fein points out that without means of assuring delivery of service merely increasing the number of physicians is only a partial fulfillment of government's growing commitment in health, and also that a surge in financing arrangements often stimulates necessary improvements in supply. The book explores a number of issues in a reasoned and interesting way; it is not always clear which factors are being emphasized. Because of this low-key approach and the range of considerations surveyed, the book stimulates discussion, and in fact such is the author's intention. One of the problems in reorganizing the practice of medicine so as to extend the benefits of the doctor-hours available is that traditions of doctor autonomy and leadership of the "team" may influence both rate of acceptance of change and the economic framework of the new approach. Specifically, if doctors' duties are reallocated to semiprofessional "others" at lower supply cost will the doctor "captain" or his group continue to be reimbursed as before? (A look at dentistry indicates that an affirmative answer is realistic.) If the answer is yes, society may still gain in that more health services for which an unsatisfied demand existed can be produced and exchanged for payment. A financing problem for the community or for the marginal "solo" patient may be the residual, however. The method used by Dr. Fein to estimate the effect of income on future demand for care is to assume that families move up one income class (in the five-step classification used by the National Center for Health Statistics). He then tries alternative assumptions about the number of physician visits to be expected for an age-sex group, based on recent national data by income class. One problem in considering aggregate visits is that use of specialists has been income-sensitive and that the nature of the relationship of utilization to income will be affected by the growing proportion of specialists. A look at population movement between income classes in a recent decade (1955-1965) shows great upward mobility and suggests the possibility of unstable utilization patterns, and of receptivity to new ways. Future exploration will be useful. CHARLOTTE MULLER
89 citations