A literature review from a recent NBER working paper by Craig Garthwaite:
There is a long theoretical literature studying the ability of physicians to induce demand for their services (Fuchs, 1978; Pauly, 1980; Dranove, 1988). The essence of the induced demand model is that following a negative shock to earnings, doctors take advantage of the information asymmetry between physicians and their patients to increase the intensity of treatment. To date, the empirical support for models of physician-induced-demand has been mixed.
The induced demand literature primarily addressed questions related to treatment intensity and revenue generating activities—not specifically labor supply (although the concepts are clearly correlated). An outstanding question in the literature is: What is the effect of income shocks on the actual amount of labor supplied by physicians, as opposed to simply their revenue generating activities such as increased testing or referrals? Enterline, McDonald, and McDonald (1973) interviewed random samples of Canadian physicians before and after the introduction of a universal health care program in Quebec. In this context, physicians decreased their hours worked following the implementation of the universal health care program. More recently, Staiger, Auerbach, and Buerhaus (2010) found that the observed decline in the reported number of hours worked for physicians from 1996 to 2008 was related to declines in physician fees. […]
Sloan, Mitchell and Cromwell (1978) provided one of the first models of physician participation in Medicaid. […] In addition to their theoretical contribution, the authors analyzed survey data and found that factors which changed the relative reimbursement from the public program (either higher Medicaid fee schedules or lower reimbursement rates in the private market) were associated with increased participation in the government program. Subsequent studies have also found that non-participation was sensitive to the reimbursements and administrative burdens involved with Medicaid (Garner, Liao, and Sharpe, 1979; Mitchell, 1991), the size of the Medicaid eligible population in the geographic area (Mitchell, 1991), other community level characteristics such as per capita income and segregation (Perloff et al., 1997), and physician specific political believes (Sloan, Mitchell, and Cromwell, 1978).
Two previous works have examined the effect of an increase in Medicaid eligibility on physician behavior. Baker and Royalty (2000) found that the Medicaid expansions for pregnant women led to improved access to public clinics and hospitals. Bronstein, Adams, and Florence (2004) examined physician participation responses to SCHIP in communities in Alabama (who expanded their existing Medicaid program) and Georgia (who implemented a separate state SCHIP program). They found that physicians in Georgia increased their participation in the government insurance program while those in Alabama did not. The analysis did not examine physician labor supply or practice patterns beyond public health insurance participation.
References
Baker, Laurence, and Anne Royalty. 2000. “Medicaid Policy, Physician Behavior, and Health Care for the Low-Income Population,” The Journal of Human Resources, 35: 480-502.
Bronstein, Janet, Kathleen Adams, and Curtis Florence. 2004. “The Impact of S-CHIP Enrollment on Physician Participation in Medicaid in Alabama and Georgia.” Health Services Research, 39: 301-318.
Dranove, David. 1998. “Demand Inducement and the Physician/Patient Relationship,” Economic Inquiry, 26: 281-298.
Enterline, Philip, Corbett McDonald, and Alison McDonald, “Effects of Free Medical Care on Medical Practice—The Quebec Experience,” The New England Journal of Medicine, 288: 1152-1155.
Fuchs, Victor. 1978. “The Supply of Surgeons and the Demand for Operations.” The Journal of Human Resources,” S: 35-56.
Garner, Dewey, Winston Liao, and Thomas Sharpe. 1979. “Factors Affecting Physician Participation in a State Medicaid Program,” Medical Care, 17: 43-58.
Mitchell, Janet. 1991. “Physician Participation in Medicaid Revisited.” Medical Care, 29: 645-653
Pauly, Mark. 1980. Doctors and Their Workshops. Chicago: University of Chicago Press.
Perloff, Janet, Phillip Kletke, James Fossett, and Steven Banks. 1997. “Medicaid Participation Among Urban Primary Care Physicians.” Medical Care, 35: 142-157.
Sloan, Frank, Janet Mitchell, and Jerry Cromwell. 1978. “Physician Participation in State Medicaid Programs.” The Journal of Human Resources, 13: 211-245.
Staiger, Douglas, David Auerback, Peter Buerhaus, “Trends in the Work Hours of Physicians in the United States,” Journal of the American Medical Association, 303: 747-753.
