Supplier-induced demand : part 2

This is the second part of an essay I submitted on supplier-induced demand.

Studies on the impact of changes in remuneration schemes

Another method used by economists to support SID and reported by Labelle (Labelle, Stoddart et al. 1994) focuses on the impact of changes in methods of remuneration on utilisation. International comparisons also provide support for SID, as fee-for-services leads to increased expenditures as compared to capitation
(Gerdtham and Jönsson 2000). However, a major problem regarding interpretation in these contexts is the numerous concomitant factors which are not taken into account and could replace SID as the explanation for this change. Since the 1960s, we have seen an ever growing pharmaceutical, technological and sociological revolution. These concomitant changes in medical practice drive demand on their own (Gerdtham and Jönsson 2000), and could explain any increase in utilisation whenever they happen concomitantly with changes in the method of remuneration.

Statistical considerations

It is beyond the scope of this article to address in detail the statistical criticisms of individual studies, but they remain a matter of debate (Labelle, Stoddart et al. 1994). After 30 years of modelling, the absence of any consensus on both the concept of SID and its statistical backing is revealing of its intangible nature. Considering every element mentioned so far, it seems clear that SID is not sustainable as a concept. Moreover, the demonstration of the potential for "supplier-induce pregnancies" is revealing of the flaws of SID models and supporting statistical tools (Dranove and Wehner 1994).

SID in view of the asymmetry of information

The effect of asymmetry of information is another perspective from which researchers have studied SID to confirm it, as reported by Labelle (Labelle, Stoddart et al. 1994), and they are based on the assumption that doctors take advantage financially from their agency relationship with patients. However, from another perspective and refuting this assumption of SID models, it is known that availability of information to patients is a key driver of demand for use by the patient, while the quantity consumed is not modulated by the supplier once the patient has decided to use health services (Kenkel 1990).

In conclusion, the existence of SID is still debatable, but no matter if SID exists, or whatever its extent, there is no doubt from common sense that doctors respond to incentives. Rather than focusing on debating the best model to support SID, efforts should focus on researching how to best incentivise doctors in order to provide practical support for policy makers [(Hadley, Holahan et al. 1979) reported in (Labelle, Stoddart et al. 1994)], without necessarily focusing on financial gain. There is a lot more than money and leisure time trade-offs in the doctor-patient relationship.

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