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A Structural Misclassifcation Model to Estimate the Impact of Physician Incentives on Healthcare Utilization

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  • Arrieta, Alejandro

Abstract

The issue of over-utilization of medical procedures has generated strong debate in the United States. It is well acknowledged that, in the agency relationship between physicians and patients, the informational advantage gives doctors an incentive to deviate from the appropriate treatment as defined for a patient's health status, thus incurring over- or under- utilization. However, the empirical consequence of this problem has not been adequately considered. In particular, physician agency breaks the correspondence between appropriate treatment and observed treatment, generating a problem whose characteristics and efects on estimation are analogous to a classifcation error. However, the error is non-random. Empirical literature that does not consider the misclassifcation problem understates the impact of clinical and non-clinical factors on healthcare utilization. This paper proposes a structural misclassification model in which the physician behavior is modeled to characterize the structure of the measurement error. The model captures the interaction between a physician's incentives and a patient's health status, and returns consistent estimators. It also lets us identify the degree of deviation from appropriate treatment (misclassifcation probability) due to physician incentives, and to compute risk-adjusted utilization rates based on clinical factors only. The model is applied to the cesarean section deliveries performed in the state of New Jersey during the 1999-2002 period. Our results show a moderate but growing rate of non-clinically required c-sections of around 3.2%. We conclude that the growth of the c-section rates in New Jersey over these years is explained mainly by non-clinical factors.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 6718.

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Date of creation: Nov 2007
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Handle: RePEc:pra:mprapa:6718

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Keywords: Misclassification; physician incentives; structural model;

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  1. Meng, Chun-Lo & Schmidt, Peter, 1985. "On the Cost of Partial Observability in the Bivariate Probit Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 26(1), pages 71-85, February.
  2. Jonathan Gruber & Maria Owings, 1996. "Physician Financial Incentives and Cesarean Section Delivery," RAND Journal of Economics, The RAND Corporation, vol. 27(1), pages 99-123, Spring.
  3. Lewbel, Arthur, 2000. "Identification Of The Binary Choice Model With Misclassification," Econometric Theory, Cambridge University Press, vol. 16(04), pages 603-609, August.
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  5. Dale Tussing, A. & Wojtowycz, Martha A., 1993. "The effect of physician characteristics on clinical behavior: Cesarean section in New York State," Social Science & Medicine, Elsevier, vol. 37(10), pages 1251-1260, November.
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  7. Victor R. Fuchs, 1978. "The Supply of Surgeons and the Demand for Operations," NBER Working Papers 0236, National Bureau of Economic Research, Inc.
  8. Dranove, David, 1988. "Demand Inducement and the Physician/Patient Relationship," Economic Inquiry, Western Economic Association International, vol. 26(2), pages 281-98, April.
  9. McGuire, Thomas G., 2000. "Physician agency," Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 9, pages 461-536 Elsevier.
  10. Donald S. Kenkel & Dean R. Lillard & Alan D. Mathios, 2004. "Accounting for misclassification error in retrospective smoking data," Health Economics, John Wiley & Sons, Ltd., vol. 13(10), pages 1031-1044.
  11. Bin Xie & David M. Dilts & Mikhael Shor, 2006. "The physician-patient relationship: the impact of patient-obtained medical information," Health Economics, John Wiley & Sons, Ltd., vol. 15(8), pages 813-833.
  12. Jason ABREVAYA & Jerry A. HAUSMAN, 1999. "Semiparametric Estimation with Mismeasured Dependent Variables: An Application to Duration Models for Unemployment Spells," Annales d'Economie et de Statistique, ENSAE, issue 55-56, pages 243-275.
  13. Poirier, Dale J., 1980. "Partial observability in bivariate probit models," Journal of Econometrics, Elsevier, vol. 12(2), pages 209-217, February.
  14. John M. Abowd & Henry S. Farber, 1982. "Job queues and the union status of workers," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 35(3), pages 354-367, April.
  15. Hausman, J. A. & Abrevaya, Jason & Scott-Morton, F. M., 1998. "Misclassification of the dependent variable in a discrete-response setting," Journal of Econometrics, Elsevier, vol. 87(2), pages 239-269, September.
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