Thomas Rice

A re-examination of the meaning and importance of supplier-induced demand.

Despite twenty years of work on supplier-induced demand (SID) there has been little discussion or investigation of how inducement affects the health of patients. We develop a conceptual framework for SID which includes the clinical effectiveness of the health services utilized as well as the effectiveness of the agency relationship between the physician and the patient. The framework is used to identify several conceptually distinct types of utilization--each with its own policy implications--which have been intermingled in the SID literature. After examining each type of utilization, we conclude that a continued focus by health economists on the phenomenon of inducement (even within an extended conceptual framework) may be too limited for the development of policies regarding health service utilization.

Do physicians induce demand for medical services

In this paper we provide a critique of an article by Roger Feldman and Frank Sloan that appeared in the Summer 1988 issue of this journal. In that article, the authors contend that there is little evidence to support the notion of supplier-induced demand or the contention that physicians generate demand to avoid the impact on their incomes of government price controls. In this critique, we argue that the evidence on supplier-induced demand and physician responses to price controls does not support the conclusions drawn by Feldman and Sloan. We conclude with a discussion of the implications of the debate for policy formulation and future research.

The impact of cost-sharing on appropriate utilization and health status: a review of the literature on seniors.

This article provides a review of research that has addressed the impact of patient costsharing on the use of services and resulting health status impacts, among the population age 65 and older. Nearly all of the 22 relevant studies examined that have been published since 1990—16 focusing on cost-sharing for prescription drugs and 6 on cost-sharing for medical services—conclude that increased cost-sharing reduces either or both the utilization and health status of seniors. Most of the studies, however, rely on cross-sectional and self-reported data. Further research, employing stronger study designs as well as clinical and administrative data, is necessary before drawing more definitive conclusions.

Can Markets Give Us the Health System We Want

The purpose of this article is to reconsider the foundations of health economics as applied to the study of competition. It shows that conclusions concerning the purported desirability of competitive markets are based on a number of assumptions--many of which have heretofore been ignored--that typically are not fulfilled in the health care area. Once this is recognized market mechanisms no longer necessarily provide the best way to improve social welfare. The article is divided into two parts: competition and demand. Each of these sections presents and then critiques key assumptions of the conventional economic model, and then provides a number of health applications. It concludes that by not considering the validity of these assumptions in health care applications, researchers and policy analysts will bind themselves to policy options that may be most effective in improving social welfare.

Reducing Public Expenditures for Physician Services: The Price of Paying Less

The purpose of this paper is to examine how physicians respond to changes in payment levels from government insurers. Our analysis focuses on two issues: controlling overall program expenditures, and assuring full access to care for program clients. We review evidence from natural experiments in which payment levels were increased, frozen, or decreased. These studies show that freezing or reducing payment levels is not effective in controlling program expenditures, because physicians responded by increasing the quantity and complexity of services provided. Furthermore, when government programs freeze or reduce their payment levels, physicians are less likely to treat the clients of these programs. We conclude that policymakers must seek alternative strategies for controlling program expenditures.

Numeracy and Medicare Part D: The Importance of Choice and Literacy for Numbers in Optimizing Decision Making for Medicare's Prescription Drug Program

Studies on decision making have come to challenge the idea that having more choice is necessarily better. The Medicare prescription drug program (Part D) has been designed to maximize choice for the consumer but has simultaneously created a highly complex decision task with dozens of options. In this study, in a sample of 121 adults, we examined the impact that increasing choice options has on decision-making abilities in older versus younger adults. Consistent with our hypotheses, we found that participants performed better with less choice versus more choice, and that older adults performed worse than younger adults across conditions. We further examined the role that numeracy may play in making these decisions and the role of more traditional cognitive variables such as working memory, executive functioning, intelligence, and education. Finally, we examined how personality style may interact with cognitive variables and age in decision making. Regression analysis revealed that numeracy is related to performance across the lifespan. When controlling for additional measures of cognitive ability, we found that although age was no longer associated with performance, numeracy remained significant. In terms of decision style, personality characteristics were not related to performance. Our results add to the mounting evidence for the critical role of numeracy in decision making across decision domains and across the lifespan.

Bounded Rationality, Emotions and Older Adult Decision Making: Not So Fast and Yet So Frugal

Herbert Simon’s work on bounded rationality has had little impact on researchers studying older adults’ decision making. This omission is surprising, as human constraints on computation and memory are exacerbated in older adults. The study of older adults’ decision-making processes could benefit from employing a bounded rationality perspective, but any such attempt must take into account the role that emotions play in older adults’ information processing, memory, and attention allocation. This is especially the case because older adults show relatively less decrements in performance when tasks are imbedded in or laden with emotional stimuli, and they exhibit a greater tendency to rely on emotional information. We examine recent work on bounded rationality and studies investigating older adults’ utilization of, and attention to, emotional information, with the aim of creating a framework that captures the mechanisms underlying older adults’ decision making.

The Behavioral Economics of Health and Health Care

People often make decisions in health care that are not in their best interest, ranging from failing to enroll in health insurance to which they are entitled, to engaging in extremely harmful behaviors. Traditional economic theory provides a limited tool kit for improving behavior because it assumes that people make decisions in a rational way, have the mental capacity to deal with huge amounts of information and choice, and have tastes endemic to them and not open to manipulation. Melding economics with psychology, behavioral economics acknowledges that people often do not act rationally in the economic sense. It therefore offers a potentially richer set of tools than provided by traditional economic theory to understand and influence behaviors. Only recently, however, has it been applied to health care. This article provides an overview of behavioral economics, reviews some of its contributions, and shows how it can be used in health care to improve peoples decisions and health.

Choosing the right medicare prescription drug plan: the effect of age, strategy selection, and choice set size.

OBJECTIVE The Medicare Modernization Act of 2003 (better known as Medicare Part D) represents the most important change to Medicare since its inception in the mid-1960s. The large number of drug plans being offered has raised concern over the complex design of the program. The purposes of this article are to examine the effect of age and choice set size (3 vs. 9 drug plans) on decision processes, strategy selection, and decision quality within the Medicare Part D program. METHOD One hundred fifty individuals completed a MouselabWeb study, a computer-based program that allowed us to trace the information acquisition process, designed to simulate the official Medicare Web site. RESULTS The data reveal that participants identified the lowest cost plan only 46% of the time. As predicted, an increase in choice set size (3 vs. 9) was associated with 0.25 times the odds of correctly selecting the lowest cost plan, representing an average loss of

The Effects of Varying Periods of Uninsurance on Children's Access to Health Care

48.71. Older participants, likewise, tended to make poorer decisions. CONCLUSION The study provides some indication that decision strategy mediates the association between age and choice quality and provides further insight regarding how to better design a choice environment that will improve the performance of older consumers.