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The income effect and supplier induced demand. Evidence from primary physician services in Norway

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  • Jostein Grytten
  • Fredrik Carlsen
  • Irene Skau

Abstract

A much debated issue within the health economic literature is whether physicians can induce demand for their services. The relationship between physicians' 'nonpractice income' and supply of primary physician services in Norway is examined. It is argued that, if inducement exists, physicians with a low nonpractice income who work in municipalities where competition for patients is high, compensate for lack of patients by inducing demand. This model is adapted to the institutional setting of the Norwegian primary physician services, where there is a fixed fee schedule. The analyses were performed on a large set of data, encompassing all primary care physicians in Norway who are remunerated per item of treatment. Data on output in practice were merged with information about nonpractice income from the tax forms of the physician and her/his spouse. In municipalities with high physician density, nonpractice income had no effect on the number of consultations per physician, or on the number of treatment items per consultation. The results are interpreted as evidence against the inducement hypothesis.

Suggested Citation

  • Jostein Grytten & Fredrik Carlsen & Irene Skau, 2001. "The income effect and supplier induced demand. Evidence from primary physician services in Norway," Applied Economics, Taylor & Francis Journals, vol. 33(11), pages 1455-1467.
  • Handle: RePEc:taf:applec:v:33:y:2001:i:11:p:1455-1467
    DOI: 10.1080/00036840010009883
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    References listed on IDEAS

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    1. Davidson, Russell & MacKinnon, James G., 1993. "Estimation and Inference in Econometrics," OUP Catalogue, Oxford University Press, number 9780195060119.
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    Cited by:

    1. Fredrik Carlsen & Jostein Grytten & Irene Skau, 2003. "Financial incentives and the supply of laboratory tests," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 4(4), pages 279-285, December.
    2. Sorensen, Rune J. & Grytten, Jostein, 2003. "Service production and contract choice in primary physician services," Health Policy, Elsevier, vol. 66(1), pages 73-93, October.
    3. Jostein Grytten & Fredrik Carlsen & Irene Skau, 2008. "Primary physicians’ response to changes in fees," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 9(2), pages 117-125, May.
    4. David Madden & Anne Nolan & Brian Nolan, 2005. "GP reimbursement and visiting behaviour in Ireland," Health Economics, John Wiley & Sons, Ltd., vol. 14(10), pages 1047-1060, October.
    5. Grytten, Jostein & Sorensen, Rune, 2003. "Practice variation and physician-specific effects," Journal of Health Economics, Elsevier, vol. 22(3), pages 403-418, May.
    6. Grytten, Jostein & Sorensen, Rune, 2001. "Type of contract and supplier-induced demand for primary physicians in Norway," Journal of Health Economics, Elsevier, vol. 20(3), pages 379-393, May.
    7. Brekke, Kurt R. & Holmås, Tor Helge & Monstad, Karin & Straume, Odd Rune, 2017. "Do treatment decisions depend on physicians' financial incentives?," Journal of Public Economics, Elsevier, vol. 155(C), pages 74-92.
    8. Léonard, Christian & Stordeur, Sabine & Roberfroid, Dominique, 2009. "Association between physician density and health care consumption: A systematic review of the evidence," Health Policy, Elsevier, vol. 91(2), pages 121-134, July.
    9. Fredrik Carlsen & Jostein Grytten & Irene Skau, 2011. "Physician response to fee changes: using inheritance as a quasi-natural experiment," Applied Economics, Taylor & Francis Journals, vol. 43(15), pages 1913-1922.
    10. Lien, Hsien-Ming & Albert Ma, Ching-To & McGuire, Thomas G., 2004. "Provider-client interactions and quantity of health care use," Journal of Health Economics, Elsevier, vol. 23(6), pages 1261-1283, November.
    11. Grytten, Jostein & Sorensen, Rune, 2007. "Primary physician services--List size and primary physicians' service production," Journal of Health Economics, Elsevier, vol. 26(4), pages 721-741, July.
    12. repec:nip:nipewp:07/2015 is not listed on IDEAS
    13. Victoria Barham & Olga Milliken, 2015. "Payment Mechanisms and the Composition of Physician Practices: Balancing Cost‐Containment, Access, and Quality of Care," Health Economics, John Wiley & Sons, Ltd., vol. 24(7), pages 895-906, July.

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