Effects of cost sharing on physician utilization under favourable conditions for supplier-induced demand

The effects of cost sharing on the demand for ambulatory care in experimental circumstances are well understood since the Rand Health Insurance Experiment (HIE). However, in a non-experimental real-world context, supplier-induced demand of doctors might erode some of the significant negative out-of-pocket price elasticity identified in the HIE. Belgium is an interesting test case for this hypothesis because it has relatively high rates of patient cost sharing in its public health insurance system and a very high density of physicians, all remunerated fee-for-service. We have exploited the price variation generated by a substantial increase in patient co-payment rates in 1994 to estimate out-of-pocket price elasticities for three groups of users, and for three types of services using a fixed-effects model in levels and in differences. We obtain significant out-of-pocket price elasticities for the general population in the range from -0.39 to -0.28 for GP home visits, -0.16 to -0.12 for GP office visits and -0.10 for specialist visits. The estimates were generally lower and less significant for the groups of elderly and disabled. The differences we find in price responsiveness appear to be fairly robust and consistent with the HIE predictions. These results suggest that--at least in the short run--non-experimental utilization effects of cost sharing are very similar to the experimental evidence, even in a situation of favourable conditions for supplier-induced demand.