Question

Write an essay in which you:

Identify and explain what implications physician induced demand have for healthcare policy.

Answer 1

Doctors are criticized for high healthcare costs in the US. Doctors dupe patients into receiving too much medication, the story goes, pushing up costs without achieving a proportionate health benefit.
They should do so, because their patients know very little about the form or amount of care they need. Confronted with payment schemes that reward a small amount of treatment, the inducing practitioner performs treatment above the level determined by rational professional judgment and patient desires. In short, inducing physicists build their own demand instead of responding to market demand.

Under induced demand, a doctor takes steps to move the demand curve of the patient towards the needs of the doctor himself. Doctors that affect such a shift because they have more knowledge about the condition and treatment options of the patient than the patient, an example of market failure known because asymmetric information. The action taken by the physician is not observed in theoretical models of induced demand and is constrained by its costs at the margin

It also appears that doctors are reacting to the opportunities in managed care programs. Finally, there is some evidence that the pay-for-performance systems and comfort considerations for doctors influence choices in health care. Taken together, these findings show that narrowly identified physician opportunities are important determinants of both the cost of healthcare and the distribution of health services in the USA.