For What Services Do General Practitioners Induce Demand? Economic Incentives and Professional

For what services do general practitioners induce demand? Economic incentives and professional norms

Lotte Bøgh Andersen & Søren Serritzlew

Paper presented at the Department of Economics, University of Copenhagen, 16. November 2007

Abstract

Whether general practitioners (GPs) induce demand for their own services, when they experiencea shortage of patients,is a point of disagreement in the literature.Likewise, the literature does not agree upon the existence of rationing in case of too many patients. We argue that the GPs induce demand and ration if no firm professional norm regulates the use of the specific service. GPs with few patients give their patients more of services without professional norms than GP with many patients, while there is no difference for services governedby professional norms. This indicates that both economic incentives and professional norms are important.The conclusions are based on register data concerning the GPs’ use of different services (n= 257 practices in the County of Aarhus), six qualitative interviews and documentary material.

Introduction

The income of general practitioners (GPs) in most western countries depends on the number (and type) of services supplied to the patients, because manypayment systems include fee-for-service elements (Gosden et al. 1999 & 2001; Groenewegen et al 1991; Hoffmeyer & McCarthy 1994). As expected by standard agency theory, fee-for-service contracts lead to higher service production than salary and capitation contracts (Sørensen & Grytten, 2003; Krasnik et al 1990). Letting the GPs income depend on the number of services produced can, however, have unintended and undesirable effects if the GPsin fee-for-service systems prioritize their own pecuniary interests higher than public economy and patient welfare. The GPs might provide too many services per patient if they have few patients on the GPs lists. ‘Supplier-induced demand’ happens when the suppliers (here the GPs) try to produce more services than initially demanded by patients or ordered by society. If the inconvenience of producing the marginal service exceed the fees (due to many patients), they might on the other hand provide fewer services than desirable seen from the societal perspective (and especially seen from the patient perspective). This is called ‘rationing’. There is, however, considerable controversy among health care researchers about the existence of supplier-induced demand and rationing. Some researchers find evidence of induction/rationing (Evans 1974; Richardson & Peacock 2006;Bech et al. 2007), and others find no relationship between the list size and the number of services (Davis et al. 2000; Madden et al., 2005; Grytten & Sørensen, 2007). We argue that this is because the existence of firm professional norms conditions the relationship.We hypothesize that if a specific medical service isfirmly regulated by professional norms, the number of services per patient does not depend on the list size. Otherwise, we expect the number of services per patient to be higher, the fewer patients the GPs have.

This propositionis tested on the very reliable Danish health insurance data which registers the exact use of 70 different GP-services. The structure of the paper is as follows: We first discuss the literature on supplier-induced demand followed by a brief introduction to the Danish GP payment system.We then use six qualitative interviews and documentary material to map out the relevant professional norms, which enables us to put forward the testable hypotheses. After a short description of the data and the methods, we test the hypotheses, and the paper concludes with a discussion about the interpretation of the results and the implications for further research.

The literature on supplier-induced demand

More than 35 years ago,Newhouse claimedthat health care providers could create the demand for their own services (Newhouse 1970). The validity of this claimsoon became one of the most controversial topics in health economics (Richardson & Peacock, 2006, 2).The central concepts in the supplier-induced demand (SID) literature are supplier-inductionand rationing,which arephysicians’ use of their market power torespectively increase and decrease the demand for their services. The market power of GPs is based on the asymmetric distribution of information. GPs have much more information about the service production than the patients. Patients seldom know how many (and which) medical services they need. Part of the SID-literature expects the GPs to take advantage of this information asymmetry and affect the demand if this is lower than the GPs want. This implies that the number of potential patients affects the service production: The fewer patients (that is, the lower demand for services), the more will the GP try to induce extra demand. In a list system (where the each GP has a list of patients attending only this GP) the SID-logic implies that GPs with short lists (low initial demand) try the hardest to increase demand and therefore tries to provide more services per patient than GPs with long lists. Physicians with very long lists might, on the other hand, ration their services, because the disutility of providing the marginal service exceeds the benefits (the fee).

Both supplier induction and rationing would lead toa negative relationship between the number of services per patient and the number of listed patients per GP (the list size). Several studies have identified this relationship empirically(e.g. Evans 1974; Richardson & Peacock 2006). One should not, however, leap from this association to the existence of supplier-induced demand. At least three alternative explanations of the negative association between list sizes and services per patient are mentioned in the literature (see Carlsen & Grytten 1998 for a more detailed discussion): First, if the fees are not fixed, and if the patients pay the services themselves, it can be difficult to distinguish a price effect from an inducement effect.Few patients per GP can drive the pricesdown, which increases the demand for services.Second, the availability of doctors (e.g. how long before the patients can get an appointment) can affect the demand. Patients might not want (or need) to go to the doctor as frequently if they must wait many days or drive long distances. Third, the number of patients per physician might be endogenous. If the GPs determine the list sizes themselves, doctors with very care-demanding patients might choose to have a short list (which also implies a negative relationship between the list size and the number of patients on the list, but with reversed time order).

Even in literature considering these factors, the existence of supplier-induction is still a much contested issue in the literature. On one hand, Richardson and Peacock (2006: 14) for example argue that “SID [supplier induced demand] provides a satisfactory explanation of the observed pattern and change in the demand for Australian medical services”, and Delattre and Dormont concludes that ”Econometric results give a strong support for the existence of PID [physician-induced demand]” (2003: 741). On the other hand, Grytten and Sørensen (2007; 2001) for example find that long patient lists in Norway do no lead to rationing, and that short lists do not increase service production (for other studies, which find similar results for other countries, see for example Davis et al. 2000 and Madden et al. 2005).

We argue these results conflict, because the relationship between list size and services per patient is conditioned by the existence of professional norms. Professional norms can be defined as prescriptions for the acceptable actions under given conditions (e.g. specific patient symptoms) applying to and sanctioned within a given occupation (Andersen, 2005: 25).Grytten, Skau, Sørensen and Aaslandargue that the professional and medical norms might control the behavior of GPs, and that GPtherefore do no allow their own “greed” to influence the production(2003: 66).They claim that“to reduce the desirable or actual treatment is not in accordance with medical ethics and professional norms” (ibid: 52, our translation). This implies that profession norms govern the provision of all the medical services of GPs. On the contrary, we argue that professional norms govern the use of some medical services, whereas no firm professional norms apply for other services. The medical occupation is usually seen as a strong profession (Freidson 1970; Dent 2003: 175-178; Saks 1995) with strong professional norms, but services without professional norms can be identified also for occupations such as doctors and dentists (Serritzlew & Andersen, 2006; Andersen & Blegvad, 2003). Further, two notions of the medically correct level of service provision exist. The optimal level for the patient is when marginal medical benefit is higher than the price paid by the patient (often zero), and the optimal level for society is when marginal medical benefit is higher than marginal costs. The level prescribed by the professional norms (if any) is probably between these two standards, and for some services it seems to be professional acceptable to provide more services (and more time consuming care) to patients, when doctors have the capacity to do so (Richardson & Peacock 2006, 13).Although sometimes pictured as an exact (and omniscient) science, medical decision-making is often both complex and uncertain (Richardson & Peacock, 2006: 8-9). Even ifthe professional norms of the medical occupation counteract some of the potential drawbacks of the GP market power, strategic action is probably possible (for some medical services) without going against the norms. Richardson and Peacock claimthat for many types of services no professionally defined level exists (ibid). This implies that the GPs have large discretion in the provisionof these services, and several studies have shown that the GPs vary much with regard to the level of service provision (ibid; Vedsted et al. 2005). The general picture is that health professionals primarily affect the number of services strategically when no professional norms apply (Goodrick & Salancik 1996; Stano 1985; Dranovo & Wehner 1994; Grytten & Sørensen 2001; Carlsen, Grytten & Skau 2003). This indicates that the general supplier-induction hypothesis must take the service type into account. The theoretical proposition of this paper thus is:

If a specific medical service is firmly regulated by professional norms, the number of services per patient does not depend on the list size. Otherwise, the number of services per patient is higher, the fewer patientsthe GPs have on their lists.

Despite the increasing attention to the importance of professional norms within the SID literature, few have tested this proposition. Iversen and Lurås show (with data from Norway) that when ”professional opinions differ”, doctors with few patients make ”longer and more frequent consultations and more laboratory tests per listed person” (2000: 447), andDavis et al. (2000: 407) argues that clinical factors rather than economic incentives explain the variation in clinical practice in New Zealand. We do not, however, know of any studies, which systematically examine the professional norms beforehand and test whether the level of supplier induction is higher for services without professional norms compared to services with professional norms. This paper provides such a test. Aftera short description of the Danish system, we analyze the norms.

Primary physician services in Denmark

In Denmark, the regions (before 2007: the counties) have responsibility for planning, organizing and running primary health services, including GP services. GPs are all self-employed specialists in general medicine with a contract with the National Health Insurance(Sygesikringens Forhandlingsudvalg & Praktiserende Lægers Organisation 2006). The pay system includes fee-per-item, fee-per-patient and a fixed amount per doctor. The fees are fixed in the agreement between the GPs’ organizations and the National Health Insurance. Fee-per-itemcomprises about 75 % of the GPs’ gross income. Only very few services involve user payment (e.g. medical certificates). The agreement between the GPs’ organization and the National Health Insurance specifies the availability conditions. A patient with an acute need must be given an appointment the same day, while non-acute treatments must be within 5 days (Sygesikringens Forhandlingsudvalg & Praktiserende Lægers Organisation 2006, § 39.1.c+d). Further, central planning has ensured that the nearest GP is very seldom far away. This makesavailability as an alternative explanation of the association between the number of patients and the number of services per patient less relevant. As the bulk of services are totally fee of charge, and the fees are fixed, another alternative explanation can be eliminated (that the association is due to fee reductions when patients are sparse). The last alternative explanation cannot, however, be eliminated that easy. We cannot conclude that list sizes are not endogenous in Denmark. If the number of patients per GP exceeds 1600, they can choose to close their list for more patients. In case of more than 2411 patients the list is closed automatically. In the investigated county, 133 practices are open, 130 are closed voluntarily, while only one practice exceed the limit for automatic closure. Due to the voluntary closure of half of the GP practices, the last alternative explanation of the association between list size and services per patient (that patient morbidity affects both services per patient which then influence the GPs decisions regarding list size) thus remains a methodological problem and is discussed in the section on data and methods.

Thementioned agreement between the GPs’ organization and the National Health Insurance differentiates between base services and supplementary services. Base services are the different types of consultations while the supplementary services consist of add-ons to the consultations(e.g. puncture of the ear drum) andlaboratory tests (e.g. urine test). The most used service is the ordinary consultation. Telephone and email consultations are faster alternatives (with lower fees) to the ordinary consultation, while visits, cognitive therapy and preventive consultations[1]are more time-consuming alternatives with higher fees. The Danish remuneration system thus opens for two types of supplier induction/rationing. First, the GP can provide more or less supplementary services, and second, they can choose strategically between three types of base services: The short ones with low few (telephone and email consultations), the normal one (ordinary consultation) and the more time consuming ones with higher fees (primarily visits and cognitive therapy). This raises another question: What services are lucrative (in terms of the trade off between fee and work load/time used)? This will be dealt with in the next section together with the professional norms.

Different services: Professional norms and lucrativeness

To put forward precise hypotheses on the relationship between list size and services per patient, we need two types of information about the services: The professional norms governing them (if any) and whether they are perceived to be lucrative compared to the alternative. We therefore conducted six qualitative interviews with general practitioners in the county of Aarhus. We stratified on gender and practice size (single or partnership) and sampled randomly within these strata. Further, we gathered clinical guidelines from the home page of the Danish Medical Association. The interviews and documents were coded in NVivo 7 for find evidence on the existence of professional norms (see for the interview guide and the categories from the coding).

The analysis showed unambiguously that the GPs’ perceive visits to be unprofitable and cognitive therapy to be lucrative compared to the ordinary consultation. Both (are supposed to) take more time than the ordinary consultation. The findings on the supplementary services (add-ons and lab tests) did not indicate any substantial differences in lucrativeness: The GPs generally considered the fee for these services to be in line with the ordinary consultation, considering the used time. We have chosen to focus on the services listed in table 1. They are all rather frequently used. Among these services, especially cognitive therapy is lucrative, especially for GPs with short lists (it is rather time consuming.

Table 1: Professional norms and lucrativeness of the analyzed medical services

Medical service / Professional norm / Fee in relation to time used
Ordinary consultation / Strong / Medium
Cognitive therapy / Very weak / Time-consuming, high fee
Visit / Strong concerning elderly / Time-consuming, not high fee
Urine test / Medium / Quick, but low fee
INR test / Medium / Medium
Index of ordinary add-ons / Medium / Medium
Index of ordinary lab tests / Medium / Medium

Note: only add-ons and lab tests, which the GP used on average one time or more in a two month period, are part of the indexes.

The interviews clearly show that professional norms require that the GP must see a patient if he/she contacts the GP (unless the demand for a consultation is obviously unfounded). Thus, the norms governing the ordinary consultation are rather strong. The more specialized base services are, however, less firmly governed. Cognitive therapy was recently introduced, and we do not find any firm norms concerning the use of this service. The norms require visits to fragile elderly patients, but no norms regulate the use of visitsto other groups of patients. The supplementary services all seem to be regulated by norms of medium strength. The main result is that cognitive therapy stands out as the service with the weakest norms. Being lucrative and without firm norms, it is the ‘most likely’ service in term of the SID hypothesis. The ordinary consultation is, on the other hand, the ‘most unlikely’ service for SID to happen. The other services lie between these extremes. Based on this analysis, the following hypotheses can be formulated: