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Policy Analysis in the Health-Services Market: Accounting for Quality and Quantity

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Author Info
Bernard Fortin
Nicolas Jacquemet
Bruce Shearer

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Abstract

We provide a theoretical and empirical framework for evaluating the effects of policy reforms on physician labor supply. We argue that any policy evaluation must account for both the quality and the quantity of services provided. The introduction of quality into the analysis has implications for both the theoretical and empirical analysis of labor supply, and consequently policy evaluation. In particular, endogenous quality choices introduce non-linearities into the budget constraint since the marginal return to an hour of work depends on the quality of services provided. We illustrate by considering a particular example: the recent reform in compensation contracts for specialist physicians in the province of Quebec (Canada). Prior to 1999, most Quebec specialist physicians were paid fee-for-service contracts; they received a piece rate for each clinical service provided. In 1999, the government introduced a mixed remuneration system, under which physicians received a base (half-daily or daily) wage, independent of services provided, and a reduced fee-for-service. Moreover, the government allowed physicians to choose their contract. We derive theoretical results for the effect of the reform on the quantity and quality of services supplied by analyzing "local" prices and virtual income. We propose discretizing the choice set as an empirical approach to policy evaluation in the presence of non-linear budget constraints.

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Paper provided by CIRPEE in its series Cahiers de recherche with number 0807.

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Date of creation: 2008
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Handle: RePEc:lvl:lacicr:0807

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Related research
Keywords: Health production; Quality of health services; Discretized models;

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Find related papers by JEL classification:
I12 - Health, Education, and Welfare - - Health - - - Health Production
D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models

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Cited by:
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  1. Etienne Dumont & Bernard Fortin & Nicolas Jacquemet & Bruce S. Shearer, 2008. "Physicians’ Multitasking and Incentives: Empirical Evidence from a Natural Experiment," CIRANO Working Papers 2008s-20, CIRANO. [Downloadable!]
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