Physician Induced Demand

In health economics text books ever since the first one I used by Paul Feldstein when I took my first health economics class in the 1989/90 academic year back at Penn State, the authors have discussed the topic of supplier induced demand.  This concept in health economics represents the idea that physicians can provide services for their patients that the patients don't really need.  Some of it is linked to the idea of defensive medicine (in other word, doing tests just to make sure that something can be ruled out--or ruled in--even if the likelihood of a result other than what is logically expected is extremely low).  But some of it is purely for the sake of the ability to make more money by practicing medicine.
In recent health economics texts, the situation was described as no longer being conducive to supplier induced demand given the degree to which patients were becoming more informed and the degree to which insurance companies were using information systems to track what was being billed and to attempt to control utilization.

While the story I'll share today is old, I stumbled on it in a blog, then found a link to a story from closer to the original event, and even a press release from the US Attorney's office.  Other than the fact that I don't tend to be teaching in June, I'm not sure how I had missed this for more than two years as an excellent example of modern day supplier induced demand.  A cardiologist doing stents that were proven, beyond a reasonable doubt (as per the US legal system), to be unnecessary.

This is interesting because it leads us to wonder what the market conditions were that allowed something like this to happen.  This is not a matter of simply performing a small extra test.  This was not prescribing unnecessary but otherwise not harmful antibiotics.  This was an example of taking advantage of the relationship that the physician had acting as an agent on the patient's behalf.  It is amazing that a procedure that can do so much good for patients who do need it was used in a way that was either (as the judge indicated) purely for greed or purely for ego.  Regardless, it shows some of the negative results that can occur in a market without regulation where one side has much more information than the other and a strong incentive to use it.  Also, it is important to recognize that this one example does not mean that this is occurring everywhere in the market, but it does make me wonder just how much of this is going on that, for whatever reason, continues to go undetected "under the radar screen".

Facts of Life and Rational Decision Making

A Washington Post blog entry caught my attention yesterday. The entry was titled, "Do teens know the facts of life?"  The fact that we would even have to address this question in the year 2012 is somewhat concerning.  A variety of beliefs exists about whether education about these matters is appropriate in the home, in the school, or in some type of faith-based education setting.  Regardless, the key is that there are many risks for teens that include pregnancy and all its consequences and sexually transmitted infections.  So, even if a parent or adult member of the community hopes the teens in whom they have an interest will remain abstinent until marriage, the teens still need information about the "facts of life" to make decisions about avoiding those risks.

In economics, we assume that people make rational decisions with complete information.  Or at least information that will give them the capacity to make a well reasoned decision.  While it could be debated whether anything related to teens in sexual relations is rational, the key is that we can't even expect teens to have an opportunity to make rational decisions if they don't have information (other than perhaps abstinence because they have been taught that is the right thing to do, though many teens are not known for doing the right thing in all cases).  The Washington Post blog is not written from an economic perspective but does point out that the most rational teens (among those who chose to have sex) may have been the ones who claimed not to use contraception because they would not have minded getting pregnant.  While we may go on to question whether the teens understood everything about pregnancy and raising a child, at least within the context of the decision about contraception, the choice seems rational.

I could certainly see where at least some may question whether we should try to use economics to think about teens and the facts of life.  However, while I realize that at the moment at which a teen would have to make a decision about contraception rationality may not be present, teens do make choices about whether to even put themselves in situations that may lead to such a moment.  If it is an appropriate societal role and use of societal resources to provide more information about the facts of life (and I realize even that is debatable), then we should think about how the information can be used best to improve the rationality of decision making for teens and which decisions are most likely to be affected by rationality.