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Strategic Interaction in the Market for Physician Services: The Treadmill Effect in a Fixed Budget System

Author

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  • Franz Benstetter
  • Achim Wambach

Abstract

We examine the strategic interaction in the market for physician services when the total budget for reimbursement is fixed. We show that this prospective payment system involves ƒ{ compared to a fee-for-service remuneration system ƒ{ a severe coordination problem, which potentially leads to the "treadmill effect". For the institutional setting of German primary physician service we provide evidence for decreasing reimbursement per treatment, which is consistent with theoretical predictions. When market entry is possible, a budget can be efficiency enhancing, if in addition a price floor is used.

Suggested Citation

  • Franz Benstetter & Achim Wambach, 2001. "Strategic Interaction in the Market for Physician Services: The Treadmill Effect in a Fixed Budget System," CESifo Working Paper Series 427, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_427
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    File URL: http://www.cesifo-group.de/DocDL/cesifo_wp427.pdf
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    References listed on IDEAS

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    1. John C. Harsanyi & Reinhard Selten, 1988. "A General Theory of Equilibrium Selection in Games," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262582384, January.
    2. Scott, Anthony & Hall, Jane, 1995. "Evaluating the effects of GP remuneration: problems and prospects," Health Policy, Elsevier, vol. 31(3), pages 183-195, March.
    3. Winand Emons, 1997. "Credence Goods and Fraudelent Experts," RAND Journal of Economics, The RAND Corporation, vol. 28(1), pages 107-119, Spring.
    4. Asher Wolinsky, 1993. "Competition in a Market for Informed Experts' Services," RAND Journal of Economics, The RAND Corporation, vol. 24(3), pages 380-398, Autumn.
    5. Gaynor, Martin, 1994. "Issues in the Industrial Organization of the Market for Physician Services," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 3(1), pages 211-255, Spring.
    6. Ma, Ching-to Albert & McGuire, Thomas G, 1997. "Optimal Health Insurance and Provider Payment," American Economic Review, American Economic Association, vol. 87(4), pages 685-704, September.
    7. Randall P. Ellis & Thomas G. McGuire, 1993. "Supply-Side and Demand-Side Cost Sharing in Health Care," Journal of Economic Perspectives, American Economic Association, vol. 7(4), pages 135-151, Fall.
    8. Dranove, David, 1988. "Demand Inducement and the Physician/Patient Relationship," Economic Inquiry, Western Economic Association International, vol. 26(2), pages 281-298, April.
    9. McGuire, Thomas G. & Pauly, Mark V., 1991. "Physician response to fee changes with multiple payers," Journal of Health Economics, Elsevier, vol. 10(4), pages 385-410.
    10. Dranove, David & Wehner, Paul, 1994. "Physician-induced demand for childbirths," Journal of Health Economics, Elsevier, vol. 13(1), pages 61-73, March.
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    Cited by:

    1. Robert Nuscheler, 2003. "Physician Reimbursement, Time-Consistency and the Quality of Care," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 159(2), pages 302-302, June.
    2. Rigmar Osterkamp, 2001. "Das deutsche Gesundheitssystem im internationalen Vergleich: Bewertung und Reformalternativen," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 54(10), pages 9-16, October.
    3. Rigmar Osterkamp, 2001. "The German Health Care System in an International Comparison: Assessments and Reform Options," CESifo Forum, Ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 2(3), pages 56-63, February.

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