A model of physician behaviour with demand inducement

Area of Science:

• Health Economics
• Medical Sociology

Background:

• The existing Farley model of supplier-induced demand (SID) needs refinement to incorporate professional ethics and competition.
• Understanding the nuances of the physician-patient relationship is crucial for analyzing healthcare market dynamics.

Purpose of the Study:

• To present an extended model of the physician-patient relationship that accounts for professional ethics, physician competition, and supplier-induced demand.
• To derive and test predictions from this new model against the neoclassical economic model.
• To evaluate the impact of SID on patient welfare, including scenarios where it may be beneficial.

Main Methods:

• Development of a theoretical model of the physician-patient relationship.
• Derivation of predictions from the proposed model.
• Comparison of the proposed model's predictions with those of the neoclassical model.
• Approximation of patient welfare loss under both neoclassical and inducement models.

Main Results:

• The extended model provides a more comprehensive framework for understanding SID, professional ethics, and competition.
• The study identifies specific conditions under which supplier-induced demand can improve patient welfare.
• Quantification of patient welfare loss due to physician market power in different economic models.

Conclusions:

• The physician-patient relationship is complex and influenced by factors beyond simple supply and demand.
• Supplier-induced demand is not inherently detrimental and can, in certain contexts, enhance patient well-being.
• A nuanced approach is necessary to accurately assess the economic implications of physician behavior and market power on patient welfare.