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Does an increase in the doctor supply reduce medical fees? An econometric analysis of medical fees across Australia

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  • Jeffrey Richardson
  • Stuart Peacock
  • Duncan Mortimer

Abstract

One of the clearest predictions of economic theory is that an autonomous increase in supply will depress the price which equilibriates supply and demand. However, US evidence with respect to medical fees has been perverse: higher fees have been observed in areas with more doctors even after standardizing for other relevant variables. This has resulted in two broad responses. Some have invoked the (once) controversial theory of supplier-induced demand to account for the anomaly. Others have suggested ingenious ways of explaining the results within the orthodox framework in which supply and demand are independent. There has been almost no analysis of price formulation in the Australian medical market. It has been generally assumed that the usual supply-demand relationships apply in the Australian context, and that perversity in the US is attributable to US-specific market characteristics. The present article examines the setting of GP fees in the Australian market using 1995 cross-section data from statistical sub-divisions. The implications of the results for workforce planning and for the analysis of consumer benefits are discussed.

Suggested Citation

  • Jeffrey Richardson & Stuart Peacock & Duncan Mortimer, 2006. "Does an increase in the doctor supply reduce medical fees? An econometric analysis of medical fees across Australia," Applied Economics, Taylor & Francis Journals, vol. 38(3), pages 253-266.
    • Handle: RePEc:taf:applec:v:38:y:2006:i:3:p:253-266
    DOI: 10.1080/00036840500218513
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    References listed on IDEAS

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    1. Greenhut, M L, et al, 1985. "An Anomaly in the Service Industry: The Effect of Entry on Fees," Economic Journal, Royal Economic Society, vol. 95(377), pages 169-177, March.
    2. Andrew M. Jones, 2012. "health econometrics," The New Palgrave Dictionary of Economics,, Palgrave Macmillan.
    3. Horowitz, Joel L., 1994. "Bootstrap-based critical values for the information matrix test," Journal of Econometrics, Elsevier, vol. 61(2), pages 395-411, April.
    4. Reinhardt, Uwe E., 1985. "The theory of physician-induced demand reflections after a decade," Journal of Health Economics, Elsevier, vol. 4(2), pages 187-193, June.
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    Cited by:

    1. Stuart Peacock & Jeffrey Richardson, 2007. "Supplier-induced demand: re-examining identification and misspecification in cross-sectional analysis," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 8(3), pages 267-277, September.
    2. Rita Santos & Hugh Gravelle & Carol Propper, 2013. "Does quality affect patients’ choice of doctor? Evidence from the UK," The Centre for Market and Public Organisation 13/306, The Centre for Market and Public Organisation, University of Bristol, UK.
    3. Jihui Chen, 2019. "The Effects of Competition on Prescription Payments in Retail Pharmacy Markets," Southern Economic Journal, John Wiley & Sons, vol. 85(3), pages 865-898, January.
    4. Jackie Cumming & Steven Stillman & Michelle Poland, 2009. "Who Pays What for Primary Health Care? Patterns and Determinants of the Fees Paid by Patients in a Mixed Public-Private Financing Model," Working Papers 09_01, Motu Economic and Public Policy Research.
    5. Hugh Gravelle & Anthony Scott & Peter Sivey & Jongsay Yong, 2016. "Competition, prices and quality in the market for physician consultations," Journal of Industrial Economics, Wiley Blackwell, vol. 64(1), pages 135-169, March.
    6. Rita Santos & Hugh Gravelle & Carol Propper, 2013. "Does quality affect patients’ choice of doctor? Evidence from the UK," Working Papers 088cherp, Centre for Health Economics, University of York.
    7. Benjamin Montmartin & Mathieu Escot, 2017. "Local Competition and Physicians’ Pricing Decisions: New Evidence from France," GREDEG Working Papers 2017-31, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France.
    8. Thomas Rice, 2012. "The Physician as the Patient’s Agent," Chapters, in: Andrew M. Jones (ed.), The Elgar Companion to Health Economics, Second Edition, chapter 25, Edward Elgar Publishing.
    9. Benjamin Montmartin & Marcos Herrera-Gomez, 2022. "Imitative Pricing: The Importance of Neighborhood Effects in Physicians' Consultation Prices," GREDEG Working Papers 2022-02, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France.
    10. Montmartin, Benjamin & Herrera-Gómez, Marcos, 2023. "Spatial dependence in physicians’ prices and additional fees: Evidence from France," Journal of Health Economics, Elsevier, vol. 88(C).

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