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Does an increase in the doctor supply reduce medical fees? An econometric analysis of medical fees across Australia

  • Jeff Richardson

    ()

    (Centre for Health Economics, Monash University)

  • Stuart Peacock

    (Centre for Health Economics, Monash University)

  • Duncan Mortimer

    ()

    (Centre for Health Economics, Monash University)

One of the clearest predictions of economic theory is that an autonomous increase in supply will depress the price which equilibriates supply and demand. However, US evidence with respect to medical fees has been perverse: higher fees have been observed in areas with more doctors even after standardising for other relevant variables. This has resulted in two broad responses. Some have invoked the (once) controversial theory of supplier-induced demand to account for the anomaly. Others have suggested ingenious ways of explaining the results within the orthodox framework in which supply and demand are independent. There has been almost no analysis of price formulation in the Australian medical market. It has been generally assumed that the usual supply demand relationships apply in the Australian context, and that perversity in the US is attributable to US specific market characteristics. The present article examines the setting of GP fees in the Australian market using 1995 cross-section data from statistical sub-divisions. The implications of the results for workforce planning and for the analysis of consumer benefits are discussed.

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File URL: http://www.buseco.monash.edu.au/centres/che/pubs/wp145.pdf
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Paper provided by Monash University, Centre for Health Economics in its series Centre for Health Economics Working Papers with number 145/04.

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Length: 24 pages
Date of creation: Apr 2004
Date of revision:
Handle: RePEc:mhe:chewps:2004-145
Contact details of provider: Postal: Centre for Health Economics, Monash University, Building 75, Clayton, Victoria 3800, Australia
Phone: +61-3-9905-0733
Fax: +61-3-9905-8344
Web page: http://www.buseco.monash.edu.au/centres/che/
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  1. Andrew M. Jones, 2012. "health econometrics," The New Palgrave Dictionary of Economics, Palgrave Macmillan.
  2. Reinhardt, Uwe E., 1985. "The theory of physician-induced demand reflections after a decade," Journal of Health Economics, Elsevier, vol. 4(2), pages 187-193, June.
  3. Horowitz, Joel L., 1994. "Bootstrap-based critical values for the information matrix test," Journal of Econometrics, Elsevier, vol. 61(2), pages 395-411, April.
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