AIMS looks at how incentives influence doctors and patients

[HALIFAX] —  The latest pieces in the Atlantic Institute for Market Studies’ (AIMS) ongoing Health Care Reform Background Series were released today. While many health policy analysts argue that economic analysis can’t be applied to medical care, the two papers released today use an extensive review of the health economics literature to cast doubt on that assumption.

As AIMS author and Guelph University health economist Brian Ferguson states: “From the economist’s point of view, the market for medical services behaves exactly the same as any other market. Physicians are small businesspeople, and if they are going to be able to pay their mortgages and send their children to university, they must act like small businesspeople. Any national health insurance policy that doesn’t take this situation into account is bound to fail.”

Issues in the Demand for Medical Care: Can Consumers and Doctors be Trusted to Make the Right Choices?  explores the concept of physician induced demand, one of the fundamental underpinnings of the policy where government limits enrolment in medical schools and artificially limits the number of Canadian physicians. Correlating high demand for health care services with the number of doctors practising in an area does not in itself confirm physician-induced demand. In fact, it is far more likely that the demand for medical services in an area induces physicians to practise there.

Doctors Have to Make a Living Too: The Microeconomcs of Physician Practice delves deeper into the misconceptions about cost drivers in the health care field. Looking at the arguments supporting two common cost cutting and service expanding ideas – the introduction of non-physician practitioners (NPP) or the introduction of doctor’s salaries in place of fee for service – the author finds these ideas ignore fundamental economic realities and, have exactly the opposite impact to what was intended.

In a free market, if NPP services are equivalent to MD services, the price NPPs get paid for each service will rise to equal the price an MD would get paid for the same service. This has happened in the US to the point where many proponents of NPPs acknowledge that they have lost their cost advantage over MDs. Similarly, doctors working under fee-for-service provide six more patient contact hours per week than do doctors working under other remuneration systems like capitation.

“Much of the health care debate has taken place under a false assumption that market forces have little impact on the demand or supply, of health services,” says AIMS President, Brian Lee Crowley. “These papers clearly show that assumption to be wrong, and we need to reconsider our policy choices in that context.”

This economic reality will be one of the centrepieces of AIMS’ Alternative Royal Commission on Health Care Report to be presented tomorrow at the Ontario Hospital Association’s Annual Conference in Toronto.


For further information, contact:
Brian Lee Crowley, President, AIMS, 902-499-1998
Brian Ferguson, 519-824-4120