Physician-Induced Demand for Medical Care: Irish General Practitioners

In a cross-section study based on a national household sample survey, return visits with general practitioners (GPs) vary with the ratio of GPs to population. Thus, higher physician supply, which by itself would depress physician incomes, is compensated for by higher utilisation, in the form of increased return visits. Return visits also vary inversely with the regional ratio to population of low-income persons with free GP care. These results suggest that some demand for GP services is induced by the GPs themselves, for self-interested economic reasons. Similar studies have produced similar results in other countries with fee-for-service methods of remunerating physicians. I I N T R O D U C T I O N O difference between medical care and other private goods which are sold in markets is that in the market for medical care, supply and demand may not be independent. Much resource uti l isat ion in medical care is physician•Much of the research on which this paper is based was conducted while the author was a visiting Research Professor at The Economic and Social Research Institute, Dublin. The support of the Insti­ tute is gratefully acknowledged. In addition, the survey to which reference is made herein was spon­ sored by the following (all of Dublin): The Central Bank of Ireland; The Health Education Bureau; the National Board for Science and Technology; and the Voluntary Health Insurance Board. This support is also gratefully acknowledged. An earlier version was presented to the Annual Conference of the New York State Economics Association, Syracuse University, April 3, 1982; and a still earlier version was read to the Annual Conference of the Irish Association of University Teachers of Eco­ nomics, Wexford, April 5, 1981. Helpful comments on earlier drafts were made by Sean Barrett of Trinity College, Dublin; John A. Henning and Stephen H. Long, of Syracuse University; Louis F . Rossiter of the US National Center for Health Services Research; and Miriam M. Wiley of Brandeis University. Helpful comments on the present draft were made by two anonymous referees and the Economics Editor of this Review, Frances Ruane, Trinity College, Dublin. Any errors are the sole responsibility of the author. induced. The possibility arises that physicians generate demand for their own services, at least i n part, for self-interested economic motives. This paper pre­ sents some rather unique data f rom Ireland on physician-induced demand, and uses those data to examine some propositions bearing on various models o f physician behaviour. The present paper is part o f a major study of ut i l isat ion in Ireland of a wide range o f medical care services. Recent growth in medical care expen­ ditures in Ireland has been explosive and unsustainable. The larger study focuses on the reasons for this growth and possible means o f containing i t , concentrating on the role o f consumer and, especially, provider incentives. I t is expected that the study as a whole w i l l be published later by The Economic and Social Research Inst i tute. Both the larger study and the present paper are based in considerable part on a national household survey of medical care ut i l isat ion, conducted by the author in 1981, using the facilities of the Survey U n i t o f The Economic and Social Research Inst i tute. The survey is discussed later. I I PHYSICIAN-INDUCED D E M A N D Apar t from the in i t ia l decision to contact a primary care physician, which is usually made by the patient (or a responsible member of the patient's household), many, and perhaps most, medical care decisions are made by , or strongly influenced by , the physician. The latter typical ly decides on the need for a' return appointment or appointments; refers patients to other doctors, such as specialist; refers patient to non-doctor practitioners, such as nurses, dentists, or social worker^; refers patients to hospital for x-rays, laboratory tests, or other out-patient services; prescribes medicines; suggests or orders over-the-counter non-prescription medicines; prescribes, orders, or suggests devices and appliances; and refers patients to hospital for admission. Where the, patient is referred to a second physician, such as a specialist, that doctor is l ike ly to make or to strongly influence further uti l isat ion decisions. Many of these decisions affect the physician's own income and/or workload. There are two principal models of physician behaviour: the "agency" , model and the self-interest model . 1 The former is due to Feldstein (1974).