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Physician-induced demand for childbirths.

D Dranove¹, P Wehner

¹Kellogg Graduate School of Management, Northwestern University, Evanston, IL 60208.

Journal of Health Economics

|February 7, 1994

Summary

The two-stage least squares (TSLS) method for detecting physician-induced demand may be unreliable. Applying TSLS to childbirths, where demand inducement is minimal, yielded questionable results, suggesting flaws in the TSLS approach itself.

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Area of Science:

Health Economics
Econometrics
Medical Practice Analysis

Background:

Physician-induced demand is a significant concern in healthcare economics.
Two-stage least squares (TSLS) regression is a common econometric technique used to test for physician-induced demand.
The validity of TSLS in this context has been debated due to potential confounding factors.

Purpose of the Study:

To critically evaluate the effectiveness and reliability of the TSLS regression technique.
To test the TSLS approach in a scenario with minimal expected demand inducement: the demand for childbirths.
To identify potential limitations and biases within the TSLS methodology when applied to healthcare utilization data.

Main Methods:

Utilized cross-section data on physician supply and healthcare utilization.
Applied the two-stage least squares (TSLS) regression analysis.
Focused the analysis on the specific case of childbirths to minimize inherent demand inducement.
Examined potential issues in the first-stage regression identification and second-stage regression's handling of geographical factors (border crossing).

Main Results:

The study found statistically significant 'evidence' of physician-induced demand for childbirths, an unlikely outcome.
This unexpected finding suggests potential flaws in the TSLS methodology itself.
Identified limitations include the lack of identification in the first-stage regression and inadequate adjustment for cross-border utilization in the second stage.

Conclusions:

The findings cast doubt on the general validity and reliability of the TSLS regression technique for testing physician-induced demand.
The TSLS method may produce spurious results when applied to healthcare services, particularly when inherent demand inducement is low.
Further methodological refinement is needed for econometric approaches used in healthcare economic research to accurately assess physician influence on demand.

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