Chapter 8

Question 1

______ both provide important
labor in medical care production and
make key decisions in the health
system

Answer 1

Physicians

Question 2

Hospitals = ‘

Answer 2

Doctors’ Workshops’
(Pauly, 1980)

Question 3

The doctor’s large information
advantage over the patient leads
researchers to question whether the
typical physician is really a ________, or perhaps, at times, even
induces patient demand in order to
increase income.

Answer 3

“perfect”
agent

Question 4

introduced by McGuire and Pauly (1991)

Answer 4

BENCHMARK MODEL OF THE
PHYSICIAN’S PRACTICE

Question 5

-the model captures most of the observed physician behaviors as special cases of a
utility-maximizing physician decision maker. (not just profits)

Answer 5

BENCHMARK MODEL OF THE
PHYSICIAN’S PRACTICE

Question 6

In this benchmark model, the physician gets utility from

Answer 6

(1) net income and
(2) leisure, and
(3) disutility from inducement

Question 7

is the physician’s own efforts to induce patients to buy more
care than appears medically necessary.

Answer 7

Inducement –

Question 8

This last factor introduces the _____ controversy into the model (Q: whether physicians use their knowledge advantage to abuse their
agency role for monetary gain.)

Answer 8

supplier-induced demand (SID)

Question 9

U = U(p, L, I)
where p is the _______ from the practice; L is the ______, and I is
the _______.

Answer 9

net income; physician’s leisure time; degree of inducement

Question 10

With three variables to consider, the physician must consider the willingness to
trade off between three pairs of goals:

Answer 10

(1) Net income p and Leisure L;
(2) Leisure L and Inducement I;
(3) Net income p and Inducement I.

Question 11

determines the slope of this labor
leisure tradeoff.

Answer 11

“wage,” w,

Question 12

-Assume that the work hours return a
constant revenue, w, for each hour worked

Answer 12

Tradeoff
between
Income and
Leisure

Question 13

It follows that higher wage levels w2> w1, and
then w3> w2, will result in ______ rising
income lines.

Answer 13

steeper

Question 14

This pattern is recast in Panel B,
where wage levels (w1, w2, and w3)
and labor are on the axes, in this
case forming the

Answer 14

“backward
bending labor supply curve.”

Question 15

the physician is primarily
motivated by higher wages
to substitute labor for
leisure.

Answer 15

SITUATION A’ to B’

Question 16

The physician’s income effect
dominates this substitution effect.
The physician becomes rich
enough to wish to spend more
time enjoying the income

Answer 16

SITUATION B’ to C’

Question 17

The physician shown would move
along the curves toward point B’.
This implies a wish to compensate
for lost income by working more

Answer 17

At C, and wage falls

Question 18

The model proposes that physicians dislike
inducing patient demand, viewing such
activity as “less than professional.”

Answer 18

2. Tradeoff between Net
   Income and Inducement

Question 19

The model proposes that physicians dislike
inducing patient demand, viewing such
activity as

Answer 19

“less than professional.”

Question 20

With each unit of induced patient care, the
physician experiences a ______in utility that
must be offset by the extra utility gained from
the extra income that inducement brings.

Answer 20

decline

Question 21

The ______represent the
physician’s preferences.

Answer 21

indifference curves

Question 22

T or F

The indifference curves slope downward
because one of the two “goods,” I, is really
“bad.”

Answer 22

F

The indifference curves slope upward
because one of the two “goods,” I, is really
“bad.”

Question 23

To remain on the same indifference curve, the
physician must gain additional ________to
offset the disutility of engaging in a higher
level of I.

Answer 23

net income

Question 24

higher curves
are

Answer 24

preferred

Question 25

QUESTION: Do Physicians Respond to Financial Incentives?

Answer 25

Yes

Question 26

The _____assumes that physicians seek profits among other goals

Answer 26

benchmark model

Question 27

There is ample evidence that suggests physicians do respond to profit incentive

Answer 27

One sort of evidence describes physician output changes when facing clearly different reimbursement methods. Studies also suggest that physicians respond to income pressures on their practice by striving to increase their incomes. Analysts have found that OB/GYN physicians will recommend caesarean section, a more lucrative treatment, when their practice incomes are threatened by competition

Question 28

One sort of evidence describes physician output changes when facing clearly different ______

Answer 28

reimbursement methods.

Question 29

, a fixed total payment (Nassiri and Rochaix, 2006).

Answer 29

capitation

Question 30

In Norway, patients are required to register with a physician, creating a patient list for each physician. Physicians with short lists tend to grow their lists more than average during the next five years to make up for reduced income

Answer 30

(Iversen, 2004).

Question 31

Analysts have found that OB/GYN physicians will recommend caesarean section, a more lucrative treatment, when their practice incomes are threatened by competition

Answer 31

(Gruber and Owings, 1996)

Question 32

On becoming ill, consumers hire health care professionals to serve as ____

Answer 32

agents

Question 33

is where professionals have a great deal more knowledge of the subject at hand than the consumer.

Answer 33

Agency

Question 34

When parties have unequal knowledge, we refer to the problem as

Answer 34

asymmetric information.

Question 35

In medicine, we identify the physician as the_____, and the patient as the _____

Answer 35

agent; principal

Question 36

POLICY CONCERN: Out of _____, physicians may violate their roles as agents

Answer 36

self-interest

Question 37

Health economists have defined the _______as ones who make those choices and recommendations on behalf of the patients that the patients themselves would have made if they had the same information

Answer 37

“perfect agents”

Question 38

We will describe physicians who knowingly induce their patients to consume other than this optimal amount of care as being in

Answer 38

violation of agency.

Question 39

Does all supplier induced demand entail violation?

Answer 39

NO.

Question 40

Modeling Supplier Induced Demand REASONS:

Answer 40

(1) First, one wishes to understand the motivations of physicians, how their incentives affect their practice. (2) Second, models help to understand the data we observe

Question 41

Modeling Supplier Induced Demand ASSUMPTION

Answer 41

▪ let us acknowledge that the asymmetric information advantages give the physicians the power to misuse their agency relationship with the patient to personal advantage. ▪ Note that the physician depicted at equilibrium E1 has chosen to induce demand by OIE1. ▪ If such inducement is very common, it may be very difficult to detect because when everyone induces, it becomes normal.

Question 42

if all physicians in the market behaved like our individual physician, an increase in the supply of physicians would lead to

Answer 42

an increased aggregate quantity of care.

Question 43

WHo proposed a “fee test” to address this confusion, claiming that a rise in physician fees to a level higher than before the supply increase could be caused only by inducement.

Answer 43

Uwe Reinhardt

Question 44

Uwe Reinhardt proposed a _______to address this confusion, claiming that a rise in physician fees to a level higher than before the supply increase could be caused only by inducement.

Answer 44

“fee test”

Question 45

Economists who first proposed the SID criticism of physician behavior formulated the “target income hypothesis”

Answer 45

(Evans, 1974).

Question 46

Economists who first proposed the SID criticism of physician behavior formulated the _____(Evans, 1974).

Answer 46

“target income hypothesis”

Question 47

This argues that physicians have desired incomes that they strive to achieve or to restore whenever actual income falls below the targets.

Answer 47

“target income hypothesis”

Question 48

This _____is a special case of the benchmark model, though a relatively extreme one

Answer 48

target income model

Question 49

suggests that for the physicians in question, income becomes not merely the main thing but the only thing

Answer 49

Target income behavior

Question 50

The McGuire-Pauly synthesis tells us that the size of the income effect is critical to understanding and identifying SID behavior. A lower profit rate, m, has two offsetting effects on inducement

Answer 50

1. Substitution effect: 2. Income effect:

Question 51

The _____synthesis tells us that the size of the income effect is critical to understanding and identifying SID behavior. A lower profit rate, m, has two offsetting effects on inducement: 1. Substitution effect: If inducement is less profitable (smaller m), providers would do less inducement, that is, substitute away from it. 2. Income effect: Decreased income would make inducement more desirable

Answer 51

McGuire-Pauly

Question 52

If inducement is less profitable (smaller m), providers would do less inducement, that is, substitute away from it

Answer 52

1. Substitution effect:

Question 53

Decreased income would make inducement more desirable

Answer 53

2. Income effect:

Question 54

For inducement to increase, a ______ on inducement must be large enough to overcome the negative substitution effect on inducement.

Answer 54

positive income effect

Question 55

T or F Analysts will find it hard to conflate inducement with one or more of the many marketing practices common to virtually all firms.

Answer 55

F Analysts will find it easy to conflate inducement with one or more of the many marketing practices common to virtually all firms.

Question 56

Marketing 4P’s:

Answer 56

Product, Place, Price, Promotion.

Question 57

argued that much of the observed variation relates closely to the degree of physician uncertainty with respect to diagnosis and treatment.

Answer 57

Wennberg (1984)

Question 58

The physician’s habits of treatment choices, beliefs about efficacies, and patterns of practice are seen as

Answer 58

“style.”

Question 59

Practice style probably varies among physicians due to an

Answer 59

incomplete diffusion of information on medical technologies.

Question 60

(PPACA) Stands for

Answer 60

Patient Protection and Affordable Care Act

Question 61

____depicts the physician as someone who positively values net income and leisure, and dislikes inducing patient demand. It shows that a physician may respond to increased competition by greater effort at inducement.

Answer 61

Our benchmark model

Question 62

The model also shows that to support the supplier-induced demand (SID) hypothesis, the physician’s income effect must be positive and substantial

Answer 62

benchmark model