Volume 19, Number 2 (Spring) 1984
Rossiter, Louis F., and Gail R. Wilensky. 1984. “Identification of Physician-Induced Demand.” Journal of Human Resources 19(2):231-244.
Whether market failure exists in the health care sector, because physicians induce demand in their own self-interest, has not been clearly addressed because of identification problems. A model is developed which includes the patient’s financial burden as a limiting factor on demand inducement. New data from a national survey are used to test the demand inducement hypothesis and identify physician-initiated expenditures. When individual health insurance and other factors are held constant, additional corroboration of the physician-induced demand hypothesis is found, but the magnitude of the effect is very small and is statistically significant only for more discretionary expenditures.
The authors are, respectively, Assistant Professor of Health Economics, Medical College of Virginia, Virginia Commonwealth University, Richmond, Va., and Vice President, Domestic Affairs, and Director, Center for Health Information, Project HOPE, Millwood, Va. Most of the work for this paper was done while both authors were at the National Center for Health Services Research. The views expressed in the paper are those of the authors and no official endorsement by the National Center for Health Services Research is intended or should be inferred. We are grateful to Paul Menick and Michael Levintow of Social and Scientific Systems for data processing assistance and to John Carrick for preparation of the manuscript. An earlier version of this paper was presented at the National Health Policy Forum, Washington, June 1982.
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