A further analysis of the physician inducement controversy.

This article extends several recent contributions that have compared the physician-induced demand hypothesis to the theory of a monopoly where advertising is included as a decision variable. By introducing a standard profit-maximizing model with inducement, it derives the conditions for the optimum level of inducement to show that the controversy over inducement is directly related to the elasticity of demand for the physician's services. In particular, inducement is likely to be prevalent only where the individual physician has a high degree of monopoly power as measured by its elasticity of demand. It will disappear entirely as competitive conditions are approached. Furthermore, the article argues that a physician's level of induced output is likely to diminish, and not increase as others have suggested, following increases in physician supply.

[1]  Joseph P. Newhouse,et al.  A MODEL OF PHYSICIAN PRICING , 1970 .

[2]  T. McCarthy.  The competitive nature of the primary-care physician services market. , 1985, Journal of health economics.

[3]  Rossiter Lf,et al.  A reexamination of the use of physician services: the role of physician-initiated demand. , 1983 .

[4]  M. Stano,et al.  An analysis of the evidence on competition in the physician services markets. , 1985, Journal of health economics.

[5]  R. Dorfman,et al.  Optimal Advertising and Optimal Quality , 1976 .

[6]  P. Feldstein.  The emergence of market competition in the U.S. health care system. Its causes, likely structure, and implications. , 1986, Health policy.

[7]  M. Feldstein.  The Rising Price of Physicians' Services , 1970 .

[8]  M. Satterthwaite,et al.  The pricing of primary care physicians' services: a test of the role of consumer information , 1981 .

[9]  M. Stano,et al.  The effects of physician availability on fees and the demand for doctors' services , 1985 .

[10]  M. Satterthwaite.  Consumer Information, Equilibrium Industry Price, and the Number of Sellers , 1979 .

[11]  M. Stano.  A Clarification of Theories and Evidence on Supplier-Induced Demand for Physicians' Services , 1987 .

[12]  J. Green.  Physician-induced demand for medical care. , 1978, The Journal of human resources.

[13]  L. Rossiter,et al.  The relative importance of physician-induced demand in the demand for medical care. , 1983, The Milbank Memorial Fund quarterly. Health and society.

[14]  Mark V. Pauly,et al.  The Not-For-Profit Hospital as a Physicians' Cooperative , 1973 .

[15]  Gail R. Wilensky,et al.  IDENTIFICATION OF PHYSICIAN-INDUCED DEMAND* , 1984 .

[16]  Mark V. Pauly,et al.  Doctors and Their Workshops , 1980 .

[17]  R. Evans,et al.  Supplier-Induced Demand: Some Empirical Evidence and Implications , 1974 .

[18]  R. A. Kessel,et al.  Price Discrimination in Medicine , 1958, The Journal of Law and Economics.

[19]  R. Oaxaca,et al.  Identification of supplier induced demand in the health care sector. , 1981, The Journal of human resources.

[20]  L. M. Nelson,et al.  Physician Payment Systems: A Review of History, Alternatives and Evidence , 1986, Medical care review.

[21]  S. Shalit.  A Doctor-Hospital Cartel Theory , 1977 .

[22]  U. Reinhardt,et al.  The theory of physician-induced demand: reflections after a decade. , 1985, Journal of health economics.

[23]  George H. Sweeney.  The Market for Physicians' Services: Theoretical Implications and an Empirical Test of the Target Income Hypothesis , 1982 .

[24]  Richard K. Anderson,et al.  A Theory of Physician Behavior With Supplier- Induced Demand* , 1981 .