The role of perceived price in physicians' demand for diagnostic tests

This research examines the extent of physicians implicit price knowledge and its role in the physicians' demand for diagnostic tests. In particular, it examines the effect of perceived price on the quantity of test ordered. A group of 36 second and third-year residents and 23 clinical faculty members in three family practice centers affiliated with the Family Medicine Department of Wayne State University were randomly assigned to either a control group or an experimental group. They were asked to review four case studies and indicate on a test order form the tests they would order. The experimental group used a test order form that included the actual test prices and the control group used the same form but without the prices included. Subsequent to this, the control group (those without actual price information) was asked to estimate the price of all tests listed. Physicians' implicit price knowledge was measured by the number of underestimates, overestimates, and correct estimates and correlated with the total number of tests ordered. The results show the following tendencies: 1) physicians generally incorrectly estimate prices; 2) they tend to underestimate rather than overestimate; 3) they tend to underestimate the higher priced tests and overestimate the lower priced tests; 4) the greater the propensity to underestimate, the greater the number of tests ordered; 5) the greater the propensity to overestimate, the fewer the number of tests ordered; and 6) the greater the propensity to correctly estimate, the fewer the number of tests ordered. The results indicate that in the absence of actual prices, perceived prices enter the physicians' demand function and that physicians' demand for diagnostic tests might be categorized as rational.