Physician-induced demand in healthcare markets

Physician-Induced Demand: An Overview

On the most basic level, physician-induced demand would seem to reflect the inherent inequities of knowledge in the patient-physician relationship. The physician presumably possesses more medical expertise than the person he or she is treating and theoretically has a strong incentive to prescribe more intensive treatment to increase his or her revenue, rather than to administer the least intensive treatment. Additionally, healthcare consumers may associate more care with better care.

The idea that physicians over-prescribe to please healthcare consumers is supported by strong correlations between physician density in areas and increased levels of treatment. While it is true that it can be difficult to compare different areas, given "potential confounders, particularly possible differences in the health status of diverse populations…to "eliminate that problem" in one study "physicians were presented with identical, hypothetical medical cases. Actual physician density was significantly and positively correlated with the aggressiveness of proposed treatment, holding constant other physician characteristics" (Fallon 1984). This result lends support for the hypothesis of demand-inducement in the sense that physicians may overprescribe treatments and medications to ensure a loyal patient base.

The market-based tendency towards over-treatment and over-prescription supports the logic of managed care, as administered through Health Management Organizations (HMO)s. Theoretically these models reduce costs by rationing care and requiring approval for services that can be abused by physicians to increase costs, like potentially unnecessary medical tests. For physician-induced demand to not exist in the absence of HMOs and other forms of rationing, physicians would have to put the ethics of medical care and even their desire to increase their patient base ahead of their own financial interests. However, it would seem that there are certain caveats: some consumers might mistrust physicians that prescribe too many medications and tests that seem unnecessary. They might research treatments and decide the expensive methods prescribed by their physician are not required. Presumably if "physicians deviate significantly from these expectations, patients are likely to seek second opinions" (Edgmand, Moowaw, Olson 1996). Also, patients may not wish to submit themselves to uncomfortable testing and treatment that seem contraindicated, based upon their layperson's medical knowledge.