Supplier Induced Demand in Healthcare - Literature review Example

Supplier induced demand in healthcare Aim: To critically evaluate the arguments and evidence for and against the theory of supplier induced demand in health care Introduction In the economic sense, there are three types of factors that affect the productivity of the market that is the supply, the demand and the consumer sovereignty (Zubkoff 1976). The assumptions that drive the supply process include the idea that the consumer knows what he wants, the consumer knows the effectiveness and the quality of the service or product he wants, the consumer has knowledge of the cost of the service or product and that the consumer uses his or her knowledge and information on the service or product so as to attain maximum effect or satisfaction (Wennberg, Barnes & Zubkoff 1982). This does not apply in healthcare as the consumer (patient) has no ‘jurisdiction’ on what is important to him/her, there is lack of access to the appropriate information to allow him participate in choosing the service required, the patient also does not have information on the value of most of the services recommended by the supplier (physician). The physician acts as the supplier but also as the advisor to the patient (Wennberg, Barnes & Zubkoff 1982). The advantage that the physician has over the patient is that, he is the one trained and equipped to identify the health needs of the patient hence able to recommend therapy and in many cases leads to physicians manipulating the demand (Arrow 1963). Hence the supplier induced demand in healthcare can be defined as the phenomenon of physicians changing from their vowed roles and responsibilities to providing unnecessary care with the main objective being to increase their own economic resources (Leonard, Stordeur & Roberfroid 2009). This essay shall endeavour to critically evaluate the arguments, the evidence for and against the supplier induced demand in the healthcare sector. The Arguments and evidence for and against the use of Supplier induced Demand in Healthcare There are many arguments that are put forward over the use of the supplier induced demand in healthcare. According to research the best way to control the welfare of the patients is to regulate the professional conduct of the physicians, an example of how this can be done has been through use of professional bodies which set standards on the best treatments for patients. Sloane and Feldman do not seem to agree with this notion and argue that standard theory does not require that patients should have all the information relating to treatment but that they should be given the information needed for them to have options of seeking the treatment at the lowest possible price (1978). This might make sense especially when an expensive treatment or therapy needs to applied for example in chronic patients. The increase in attention of the chronically ill has been connected to the increase in the physician induced demand for health care (Van Dijk et.al 2012). Another argument on the induced demand by the physicians is the increased charge on health insurance, which Newhouse argues, drives the medical costs margin up to zero. The spread of insurance has reduced the price that the patient pays at one time and in the event increases the demand for medical services due to the ability of the patient to afford the services, this result in a steady increase in expenditure by the patient (1992). The exclusion of the employer paid premiums from being taxed increases the use of excessive health insurance. This normally has detrimental consequences on the patient, who even with the increased charges gets little additional gains (Akerlof 1970). It has also been argued that the physician induced demands have been seen as deliberate attempts to protect their incomes (McGuire and Pauly 1991). This has been the case due to reduced economic growth that has seen patients reduce their visits to the clinics hence reducing the physician’s supply cycle. Another interesting argument has been the use of the induced demand as ‘defensive medicine’ where the physician once again protects himself from malpractice suits by requesting for lab tests and other treatments that are of no benefit to the patient (Reynolds, Rizzo and Gonzalez 1987 cited in Newhouse 1992). Another argument brought forward is the use of technology. The change in technology by introduction of new procedures and new technological equipment has given the physicians an edge over the patient as there is limited information on many of the new procedures, hence increased recommendations by physicians (Newhouse 1992). I should add though that use of technology can be beneficial to the patient, the only difference in the supplier induced demand, is the question of is it really necessary? In addition, are there other cheaper but effective options, as Sloane and Feldman suggested (1978). It has not been easy to find evidence of the supplier induced demands in healthcare, as most researchers do not believe in its existence while others like Labelle et.al (1994) believe that there is empirical evidence of the same. An example of the evidence of supplier induced demand is where there is an increase in use of a particular service due to physicians encouraging the patients on its health benefits thus causing the patients to spend more on healthcare that is not worth its cost or relevance to the patient (Pauly 1994). In a comparable case, lack of supplier induced demand is seen where a patient gets advice from his/her physician with no financial impact on the patient or where a patient demands for a service that would not be of benefit to the patient’s health status, this is known as ‘normal demand’(Labelle et.al 1994). The supplier-induced demand is influenced by the state of the physician’s economic status. For example in Norway the physicians who are salaried do not exploit the supplier induced demand as their salaries are independent of the number of patients they see while those who pay themselves tend to use the supplier induced demand method so as to increase the number of consultations as well as the kind of treatment and method of diagnosis (Statistics Norway 1998; Skau 1998 cited in Grytten and Sorensen 2001). This has been reported to be effective where the number of physicians supplying the service is limited and where the patient is not well informed on his health status (Rice and Labelle 1989). In the developing countries, the supplier induced demand in healthcare has been in use since privatisation was initiated (Ferrinho,et.al 2004 ), due to the poor pay in the public health system, many doctors have opted to either completely move to the private sector or have dual employment where they work in both the private and public health sectors. In the private sector, the doctors perform the fee-payment for service procedure and compete between themselves for patients through social marketing and hence selling their services to the unmet needs of the patients (Mills, et.al 2002). The salaried physicians in the developing countries are paid poorly and that is why there is move to the private sector (Roenen et.al 1997) and use the supplier induced demand, this is different from the Norway salaried physicians who do not practice the supplier induced demand (SID) as they had no economic incentive to practice SID, it would be right then to assume that the use of SID is dependent on the income of the physicians. The prior evidence has shown that most physicians who practice the supplier induced demand prioritize this as a way of them getting and protecting their high incomes. Research has also suggested evidence that disagrees on the existence and use of the practice of supplier induced demand. The evidence has shown that this is not the case for all unsalaried or poorly salaried physicians, there is a group of physicians that give priority to family, leisure time and community medicine duties, this group chooses the a salaried contract (Grytten & Sorensen 2001). This shows that the practice is not a favourite of some physicians who value the kind of treatment they offer and also value the patients they see. There is also evidence that the motivation for physicians to practice the supplier induced demand method is not wholly on economic incentives, in their recent research, Hausman and LeGrand (1999),it was noted that though financial incentives was important, many physicians’ behaviour was more influenced by the professional norms and caring concerns for their patients and hence it was discovered that the physician’s practice was more driven and motivated by the professional norms rather than by self-interest. Research has also shown that in the areas where there is a high density of physicians, there is high competition for patients but it is worth noting that the unsalaried physicians tended not to increase provision of services as a reason for protecting and maintaining their incomes but in contrast increased the duration of consultations (Grytten & Sorensen 2001). This was done as a way of meeting the competition hence it would not be reflected as SID as it served to attract and benefit the patient. There is also the use of regulation bodies like National insurance administration in Norway that controls the physician’s practice (Malde et.al 1999 cited in Grytten & Sorensen 2001). This would thus be the reason why some researchers would reject the notion that supplier induced demand exists in the healthcare as with the strict regulations and supervision by boards it seems there exists no possibility of physicians practicing SID. Age and gender have been seen to be influencing factors in the number of services supplied by the physicians. Female physicians normally have fewer consultations as compared to their male counterparts. The longer consultations occurred more for the older generation which was a normal consideration as the older people normally have more health concerns than the younger people. This indicates that the increase in consultations or increased services did not necessarily result from the physician’s practice of SID but that it was a normal response of the patients to the characteristics of either the physician in terms of gender preference or the age of the patient in terms of the ill health occurrence (Sorensen and Grytten 1999). For the studies that have indicated presence of SID in healthcare has been due to use of aggregate data that focussed on the physicians’ behaviours rather than the individual physician’s supply of services (Sorensen and Grytten 1999). Some researchers who have cowed to the pressure of SID existence have noted that even if it’s in existence, its magnitude is small and context dependent especially in the fee for service private health sectors (Tabbush and Swanson 1996). Conclusion As many researchers have varied reasons as to the existence or not of the Roemer’s law of supplier induced demand, it would be good to note that there is also a disparity on whether the inducement is caused by the physician or the patient themselves (Lambert 1998). The use of SID has been propagated by the role physician’s play in the lives of the sick. Apart from being the physician, he also acts as the advisor and in many circumstances; he can use it to his advantage by increasing consultations or recommending treatments, lab tests or therapy. It has been shown that either the physician will do this as a result of his professional norms or because of his own self motivating interests. The SID can result in increased expenditure with the patient not receiving any additional health benefits and it can also result in reduced quality in the services offered as it is the case in most developing countries (Paredes et.al 1996). It is thus interesting to note that regulation of the physicians’ practices is paramount as it basically keeps them professional and prevents exploitation of the patients. It is still sad though that the private sector still uses this SID and there is therefore need to regulate the salaried and the unsalaried physicians to ensure patient satisfaction. References: Akerlof G (1970) “the market for ‘lemons’: Quality uncertainty and the market mechanism. Quarterly journal of Economics; 84 (3), pp 488-500. Arrow K. (1963) Uncertainty and the welfare economics of medical care. Am. _&on. Rec. 53, 941-973. 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