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

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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.
    • Handle: RePEc:ces:ceswps:_427
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    References listed on IDEAS

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    Cited by:

    1. Joseph Squillace, 2009. "The Economics of Medicaid Dental Care: How Global Budget Methods Affect Reimbursement," Poverty & Public Policy, John Wiley & Sons, vol. 1(2), pages 1-20, July.
    2. 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(03), pages 56-63, February.
    3. 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 302-322, June.
    4. 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.
    5. 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.

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