Financial incentives for physicians: The Quebec experience

This paper presents an empirical investigation of physician labour supply, based on a two‐stage budgeting model, drawing on an analogy with consumer theory. Physicians' trade‐offs between income and leisure constitute the first stage of the decision‐making process. In turn, choices are made in the second stage concerning the choice of particular activities (hospital versus office care, for example) or procedures (ordinary versus complete medical examinations), given the total medical care activity chosen in the first stage. The objective of the study is to identify physicians' responses to exogenous shocks in the remuneration system. The focus of analysis is shifted away from the identification of Supply‐Induced Demand (SID) to a more pragmatic analysis of some of the determinants of physicians' choices. The study uses monthly activity data on a panel of 677 Québec GPs between 1977 and 1983. Quantity adjustments and drifts to more complex (and therefore better paid) procedures are evidenced, mainly in response to a fifteen month tariff‐freeze. Physicians' ability to control their own work loads is also documented, both in terms of timing and level of complexity, and expenditure caps (in the form of an individual ceiling on GPs' quarterly gross income) are found to be effective at curbing high activity rates.