Monday, January 30, 2012

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".


  1. You have even managed to make it understandable and easy to read.

  2. Gastroenterologist, Geneticist, General Physician, cardiologist, Ophthalmologist etc. On highlighting gastroenterologist; he is expert in the diseases pertaining to digestive tract.