Health Economics & Policy 3rd Edition James W. Henderson Chapter 8 The Market for Health Care Professionals

The Theory of Labor Markets Input pricing Demand for inputs Human capital investment Discounting and the rate of return on investment in human capital

Specialty and Geographic Distribution Primary care-specialty care Urban-rural Physicians/100,000 population 141 in 1970 233 in 1994 Primary care physicians 50-70 percent of all active physicians worldwide, only one-third in U.S. What would it take to reach the goal of 50% primary care physicians? Should specialty mix be driven by patient preferences? OB/GYN Geographic distribution--problems in attracting physicians to rural areas. What are the solutions?

Active Physicians in the U.S.

Physician Compensation Pricing physician services Organization of physicians’ practices Mean income of $189,000 (net of practice costs and before taxes) in 1993. Over 25 percent had incomes of less than $100,000, mostly primary care and another 25 percent had incomes greater than $225,000, mostly specialists. Highest paid specialties Surgery $262,700 Radiology $259,800 Are physicians overpaid? What is the ROR to medical education? Based on a study by Weeks et al. (1994) Primary care ROR 15.9% Specialty ROR 20.9% Dentists 20.7 Attorneys 25.4 Business 29.0

Medical Practice Incomes of Physicians, Net of Expenses

Models of Physician Behavior Monopolistic competitor Imperfect agent

Controlling Physician Behavior Do physicians respond to incentives? Empirical evidence on impact of financial incentives Randomized trials (RAND experiment) Same disease studies (Epstein, Begg, and McNeil, 1986) Same physician studies (Welch, Hillman, and Pauly, 1990; and Murray et al., 1992)

Demand Inducement Theory Evidence

The Market for Nursing Services Vilified, demonized like no other industry, except maybe tobacco. Case manager to supervise provision of care--emphasis on prevention and access; cost savings incidental to treatment.

The Market for Dental Services

Summary and Conclusions Motives for pursuing medical career Changing incentive structure beginning to have an impact