Supplier-induced demand
In economics, supplier induced demand (SID) may occur when asymmetry of information exists between supplier and consumer. The supplier can use superior information to encourage an individual to demand a greater quantity of the good or service they supply than the Pareto efficient level, should asymmetric information not exist. The result of this is a welfare loss.
Explanatory theories[edit]
Target income hypothesis[edit]
The target income hypothesis suggests that a physician is motivated to maintain a certain level of desired income (the target) and if their actual income falls below this level, they will then modify their behavior to restore their income back up to the target.[7] Behavior modifications may include alterations in the physician's recommendations to patients as to the extent or appropriateness of diagnostic and treatment modalities in order to produce additional income to meet the target. Obstetricians who recommend C-sections as a standard of care for delivering babies may be using their power and authority over pregnant women and their partners as a revenue generator to reach or maintain their target income.[10][11] Jonathan Gruber and Maria Owings looked at the relationship between physician financial incentives and cesarean section delivery by examining declining fertility rates in the United States.[12] The fee-for-service (FFS) physician incentive structure makes it easier for SID to occur since it rewards the physician for increasing the quantity of services delivered rather than for the actual quality of the services; this could induce the physician to offer a higher number of services than would be the optimal amount for the patient in order to increase revenue. Some of the proposed healthcare models in the Patient Protection and Affordable Care Act (PPACA) could modify how a physician is reimbursed for delivering care that would reward quality over quantity thereby reducing SID. One of these models, the Accountable care organization (ACO), reimburses a physician through a gain-sharing model that encourages them to collaborate with other providers to deliver care thus removing some of the individual incentives to induce demand.[13] Pay for performance may also provide a strategy to discourage overuse of unnecessary, low-value interventions by reimbursing for quality of care delivered.[14]
Professional uncertainty hypothesis[edit]
The professional uncertainty hypothesis suggests that due to autonomy and individual practice patterns, physicians differ in their opinions regarding the effectiveness, appropriateness, and success rates of various treatment options for a particular condition. This leads to a level of uncertainty which may result in a lack of uniformly acceptable standards of care that can be followed by all physicians. This uncertainty may lead to different levels of recommended consumption (demand) to patients for healthcare services.[15] The use of evidence-based guidelines based on scientific evidence of improved outcomes for the diagnosis and treatment of a particular condition may reduce some physician autonomy but have a greater impact in reducing the professional uncertainty that may lead to SID.[16]
Ethical concerns[edit]
The growing trend of "boutique" or "concierge" primary care physicians who advertise "more personal care" can be viewed as an example of SID. Concierge medicine is based on an annual fee paid by the consumer. Proponents believe this model will increase the quality of care delivered to those individuals who subscribe to it. Opponents argue it creates a two tier system, with better care for those who can afford it.[63][64][65]
SID can be associated with Medicare fraud and can be a prosecutable offense for reasons that include conducting and billing for unnecessary medical procedures in patients who have little or no disease.[66][67] Another ethical concern is the rise in healthcare spending that can be caused by SID.[68] SID may also be influenced by moral hazard where consumption of healthcare services may be increased when an individual's responsibility for the cost of a treatment is low.[69]
Economics of healthcare reform[edit]
The number of physicians entering primary care practice decreases, while the number of specialists increases. Thus, despite the growing number of patients who are demanding access to healthcare, there continues to be a greater supply of specialists, and fewer primary care physicians. This phenomenon leads to greater costs and strain in the system in terms of unnecessary procedures, less access and consumer apathy on cost of care within an already fragmented healthcare system. Additionally, many economists question whether or not doctors use their relationship with the patient for their own financial advantage by recommending and providing health services that the patient would have refused if well informed.[70] This concept is referred to as supplier induced demand.
Access to care challenges are exacerbated by the introduction of the baby boomers into the healthcare system. The aging boomer population is just now reaching the age of 65 and becoming eligible for Medicare. At the same time, fee for service reimbursement from the public payers, followed by the private payers is declining. Not only is the number of primary care physicians dwindling, but this decline in reimbursement causes many of these physicians to reduce the number of appointment slots for Medicare patients. This growing barrier to primary care physicians and the preventive care they provide means that more patients are being seen in less appropriate and less efficient venues of care (such as emergency rooms).[71]
However, the passage of the Patient Protection and Affordable Care Act (PPACA) and the recent SCOTUS affirmation of the individual mandate attempt to solve some of the challenges behind the current supplier induced demand. This includes Section 3021 of the Act, which calls for the development of a Center of Medicare and Medicaid Services Innovation Center (CMMI). This new Center fosters health care transformation by finding new ways to pay for and deliver care that improves quality and health while lowering costs.[71] These innovative models of payment and care service delivery include care for Medicare, Medicaid and CHIP beneficiaries using an open, transparent, and competitive process. Other provisions of PPACA include the establishment of additional methods designed to move the current system from volume (fee for service) to value (outcomes based payment), such as the Medicare Shared Savings Program. Standard economic theory makes no allowance at all for the possibility that the supplier would influence the position of the demand curve.
The patient's role in supplier induced demand has not gone ignored by public or private stakeholders. There are numerous efforts underway to understand how to involve the consumer in shared decision making and taking responsibility for health that may contribute to supplier induced demand.[72] The development of the Patient Centered Outcomes Research Institute (PCORI) was created to conduct research to provide information about the best available evidence to help patients and their health care providers make more informed decisions. PCORI's research is intended to give patients a better understanding of the prevention, treatment and care options available, and the science that supports those options. PCORI was established by Congress through the 2010 Patient Protection and Affordable Care Act but is by law an independent, non-profit organization.[73]
Lastly, reimbursement for providers is mostly on a fee for service basis and services rendered are paid for on an individual basis. There is no limit to the number of services rendered, or expectation that payment is based on any particular outcome. In recent years however, attention has been paid to entities in the industry (payer or payer/provider collaborations) who have innovated on different ways to pay for services rendered which depend entirely on outcomes. These methods hold all parties accountable for the outcomes of the services rendered.
What is supplier Induced demand
A phenomenon known as "supplier-induced demand" happens when a provider of an item or service stimulates or produces more demand for their offering than would otherwise exist in the market. This may be accomplished in a number of ways, including marketing, price plans, or the swaying of customer preferences.
Supplier-induced demand examples include:
Upselling is a sales tactic that salespeople use to persuade consumers to buy more goods or services. A vehicle dealership could try to upsell a buyer on a more expensive automobile, more options, or warranties, for instance.
Advertising: By highlighting the features and attraction of a product, advertising may be used to generate demand for goods or services.
Expansion of services: Some providers could increase the scope of their offerings in an effort to boost demand for their goods. For instance, a physician could advise extra tests or treatments that are not medically required in order to increase income.
Consumers may suffer from increased pricing and needless use of products and services as a result of supplier-induced demand. Additionally, it may cause market inefficiencies and contribute to resource misuse.
Asymmetries in market knowledge can also lead to supplier-induced demand. As in the case of a dentist recommending treatments to a patient.
How Supplier induced demand affect the health care system
Finance for health promotion has a significant issue from induced demand, which occurs when healthcare professionals influence patients' need for treatment by taking advantage of their lack of knowledge. This study's goal was to determine the elements contributing to increased demand for healthcare services in 2018 at hospitals affiliated with Iran University of Medical Sciences (IUMS).
Even when all expenditures are covered by the patients, induced demand compromises the effective deployment of public resources. This circumstance places an additional load on the patients while upsetting the equilibrium between supply and demand in the healthcare industry. Receivers of care can have medical issues as a result of improper diagnosis and/or treatment. Induced demand creates two key issues in terms of health policy. On the one hand, it pushes the burden of health spending onto government budgets. However, when a greater proportion of a country's resources are allocated to health care with limited returns, it has an impact on efficiency. Furthermore, induced demand for care might cause significant economic loss on a national scale, particularly if the government provides subsidies for pharmaceuticals and medical services.
Empirical findings and implications[edit]
he professional connection emerges as a result of the significant information gap that exists between a physician and his or her patient, allowing the physician to exercise direct, non-price impact on the demand for his or her own services. For instance, in Iran, physicians are both overseers and decision-makers, putting their own interests ahead of patients (Keyvanara et al.,2014). Models of demand for health care that do not explicitly take into account supplier behavior are regarded poorly defined as long as the physician's economic position has an impact on the level and direction of influence exerted. Evans (1974) discovered 24 subthemes or aspects, which were subsequently classified into four categories: health-care system, insurer, health-care provider, and health-care recipient themes. Poor monitoring and control, the fee-for-service payment system, insurance companies' limited role, insufficient monitoring of insurance companies, the educational nature of our health centers, health-care providers' interests, and the information gap that exists between patients and providers were all significant factors in the induced demand for health-care services in the United States. By researching the elements that influence supplier-induced demand, health policymakers and management can design methods to lower induced demand for health care. Monitoring and control, FFS payment system, medical guidelines and protocols, weak health information technology systems, ineffective referral system, dysfunctional tax system, educational nature of health centers, and health policy were mentioned by interviewees as factors in induced demand for health care (Evans, 1974). Inadequate monitoring is one of the most critical variables impacting induced demand. The most important factor in induced demand is an intermediary between the giver and the recipient. When physicians and patients have differing levels of expertise, there is an incentive to create demand. The problem will endure because no one is filling the informational hole. Another factor that contributes to demand is the educational nature of our health facilities. Some facilities, for example, perform duplicate CT scans or angiographies for students to see. One of the reasons of induced demand is a flawed health-care tax structure. A progressive tax can aid in the prevention of induced demand. Of course, there must be some form of regulation to prevent doctors from selecting easy patients and rejecting difficult ones (Evans, 1974)