IDEAS home Printed from
   My bibliography  Save this article

Competition and physician-enabled demand: The role of managed care


  • Fang, Hai
  • Rizzo, John A.


Recent organizational changes in the health care sector promote greater patient participation in their treatment decisions. How physicians respond to patient-initiated requests for treatment is an issue of considerable policy interest. To study this phenomenon, we introduce the notion of physician-enabled demand and examine empirically whether this behavior responds to competitive pressures in the market and financial incentives associated with different physician payment mechanisms. We find that physician-enabled demand increases with more competition under fee-for-service reimbursement, but decreases with greater competition under managed care. This asymmetric response is quite consistent with our conceptual framework and at odds with alternative interpretations.

Suggested Citation

  • Fang, Hai & Rizzo, John A., 2009. "Competition and physician-enabled demand: The role of managed care," Journal of Economic Behavior & Organization, Elsevier, vol. 72(1), pages 463-474, October.
  • Handle: RePEc:eee:jeborg:v:72:y:2009:i:1:p:463-474

    Download full text from publisher

    File URL:
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    1. Fredrik Carlsen & Jostein Grytten, 1998. "More physicians: improved availability or induced demand?," Health Economics, John Wiley & Sons, Ltd., vol. 7(6), pages 495-508.
    2. McCarthy, Thomas R., 1985. "The competitive nature of the primary-care physician services market," Journal of Health Economics, Elsevier, vol. 4(2), pages 93-117, June.
    3. Miron Stano, 1987. "A Clarification of Theories and Evidence on Supplier-Induced Demand for Physicians' Services," Journal of Human Resources, University of Wisconsin Press, vol. 22(4), pages 311-620.
    4. Jeffrey M Wooldridge, 2010. "Econometric Analysis of Cross Section and Panel Data," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232588, July.
    5. Morris, Stephen, 2006. "Body mass index and occupational attainment," Journal of Health Economics, Elsevier, vol. 25(2), pages 347-364, March.
    6. Smith, Richard J & Blundell, Richard W, 1986. "An Exogeneity Test for a Simultaneous Equation Tobit Model with an Application to Labor Supply," Econometrica, Econometric Society, vol. 54(3), pages 679-685, May.
    7. John A. Rizzo & Richard J. Zeckhauser, 2003. "Reference Incomes, Loss Aversion, and Physician Behavior," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 909-922, November.
    8. Eric Delattre & Brigitte Dormont, 2003. "Fixed fees and physician-induced demand: A panel data study on French physicians," Health Economics, John Wiley & Sons, Ltd., vol. 12(9), pages 741-754.
    9. Cromwell, Jerry & Mitchell, Janet B., 1986. "Physician-induced demand for surgery," Journal of Health Economics, Elsevier, vol. 5(4), pages 293-313, December.
    10. Currie, Janet & Cole, Nancy, 1993. "Welfare and Child Health: The Link between AFDC Participation and Birth Weight," American Economic Review, American Economic Association, vol. 83(4), pages 971-985, September.
    11. Lo Sasso, Anthony T. & Buchmueller, Thomas C., 2004. "The effect of the state children's health insurance program on health insurance coverage," Journal of Health Economics, Elsevier, vol. 23(5), pages 1059-1082, September.
    12. Andrew M. Jones, 2012. "health econometrics," The New Palgrave Dictionary of Economics, Palgrave Macmillan.
    13. Rivers, Douglas & Vuong, Quang H., 1988. "Limited information estimators and exogeneity tests for simultaneous probit models," Journal of Econometrics, Elsevier, vol. 39(3), pages 347-366, November.
    14. John A. Rizzo, 2005. "Are HMOs bad for health maintenance?," Health Economics, John Wiley & Sons, Ltd., vol. 14(11), pages 1117-1131.
    15. Morris, Stephen, 2007. "The impact of obesity on employment," Labour Economics, Elsevier, vol. 14(3), pages 413-433, June.
    16. Yip, Winnie C., 1998. "Physician response to Medicare fee reductions: changes in the volume of coronary artery bypass graft (CABG) surgeries in the Medicare and private sectors," Journal of Health Economics, Elsevier, vol. 17(6), pages 675-699, December.
    17. Kenkel, Don, 1990. "Consumer Health Information and the Demand for Medical Care," The Review of Economics and Statistics, MIT Press, vol. 72(4), pages 587-595, November.
    18. 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.
    19. Chee-Ruey Hsieh & Shin-Jong Lin, 1997. "Health Information and the Demand for Preventive Care among the Elderly in Taiwan," Journal of Human Resources, University of Wisconsin Press, vol. 32(2), pages 303-333.
    20. T Rice & R Labelle, 1989. "Do Physicians Induce Demand for Medical Service?," Centre for Health Economics and Policy Analysis Working Paper Series 18, Centre for Health Economics and Policy Analysis (CHEPA), McMaster University, Hamilton, Canada.
    21. Grytten, Jostein & Sorensen, Rune, 2001. "Type of contract and supplier-induced demand for primary physicians in Norway," Journal of Health Economics, Elsevier, vol. 20(3), pages 379-393, May.
    22. Victor R. Fuchs, 1978. "The Supply of Surgeons and the Demand for Operations," NBER Working Papers 0236, National Bureau of Economic Research, Inc.
    23. Dranove, David & Wehner, Paul, 1994. "Physician-induced demand for childbirths," Journal of Health Economics, Elsevier, vol. 13(1), pages 61-73, March.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Godager, Geir & Iversen, Tor & Ma, Ching-to Albert, 2015. "Competition, gatekeeping, and health care access," Journal of Health Economics, Elsevier, vol. 39(C), pages 159-170.
    2. Tor Iversen & Ching-to Ma, 2011. "Market conditions and general practitioners’ referrals," International Journal of Health Economics and Management, Springer, vol. 11(4), pages 245-265, December.
    3. Fang Hai & Rizzo John, 2011. "Does Patient Use of Medical Information Affect Physician Practice Incentives to Provide Care?," Forum for Health Economics & Policy, De Gruyter, vol. 14(2), pages 1-22, March.


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jeborg:v:72:y:2009:i:1:p:463-474. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.