UB SUNY Health Economics Worksheet
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ECO 411/511
Homework Assignment 2
1. Consider the following total cost function
TC(Q) = 2000 + 100Q 60Q2 + 5Q3.
a.
b.
c.
d.
e.
What is the fixed cost?
What is the variable and average variable cost?
What is the marginal cost?
Calculate Q* at which the average variable cost attains its minimum.
Calculate Q** at which the marginal cost attains its minimum.
2. Cost pass-through in the perfectly competitive market
Consider a perfectly competitive market in which the demand function is q = 100 4 p and the supply
function is q = – 20 + 2 p.
a. Calculate the market equilibrium price and quantity.
b. Calculate the price elasticity of demand, ?, and the price elasticity of supply, ?, at the market
equilibrium.
c. Calculate the percentage of pass-through P by using the formulae P = ?/(?-?).
d. Now, suppose due to government regulation, the supplier would incur an additional cost of $5
for each unit they would supply the market. Show that the supply function now becomes
q = -30 + 2p.
e. Calculate the new price that the consumers would pay and calculate the increase in the
consumers price out of the initial increase of $5 per unit. Do we obtain the same number as we
did in part c)?
3. Calculating IRR(internal rate of return)
We will attempt to calculate IRR for a would-be pediatrician using the following basic assumption. At
age 22, the future pediatrician would start her 4 years of medical school, costing her $50,309/year. She
would then complete 3 years of residency, during which she would earn an income of $60,094/year.
Her salary as a pediatrician after her residency would be $181,000/year and she would work until age 65.
For simplicity, we assume alternatively, she would go straight to find a job paying her $45,478/year
starting age 22 if she did not pursue her pediatrician career, and she would work until age 65 as well.
a. Verify that the IRR would be 17.77% by calculating that the present value of her investment and
return over her opportunity cost would be zero at this rate.
b. Now suppose the government want to lower the burden by providing student loans with zero
interest rate to medical students. For simplicity, let us assume that the effect of such a policy
means she would not incur any tuition costs during her medical schooling years. Instead, she
needs to settle the total amount of 4 years tuition of $201,236 (= 4 x $50,309) at age 48. Verify
that her IRR would now become 27.11%.
4. Problem 3 from Chapter 7 in Phelps.
Suppose a society consists of three cities (A, B, an C), with populations of 99,000, 51,000, and 6,000
people, respectively. Suppose also that the society has a total of 15 doctors.
a. What cities will have how many doctors?
b. If the number of doctors doubles, how many will live in each city?
5. Problem 7 from Chapter 8 in Phelps.
Using Figure 8.5 as the basis, construct a figure showing a gift with a restriction that quantity be
at least N* but where Trustee B decides to vote against accepting the gift. Explain carefully why
you drew the curves as you did.
MODERN
Health
LABOR
Economics
ECONOMICS
12
6TH EDITION
THEORY ANDCharles
PUBLIC E.
POLICY
Phelps
CHAPTER
7
Physicians in the
Marketplace
1
Learning Goals
Identify how doctors choose to locate their medical practices in a spatial
equilibrium.
Master the concepts of monopolistic competition as a way of
understanding medical service markets, and understand how prices and
output of each physician-firm are set in such markets.
Follow the role of consumer search and how it affects physician-service
markets.
Understand how advertising and licensure affect these markets.
Grasp the distinction between the market-level demand curve and the
demand curve facing specific physician-firms.
Explore the world of induced demand for medical care and its
consequences.
Examine various studies showing the extent of induced demand in various
settings, and critique the quality of this evidence.
2
7.1 Physician Location Decisions
In the Hotelling (1929) model of spatial competition, identical ice cream vendors
sell to customers who are uniformly distributed along a beach.
A single seller would locate in the middle of the beach, with equal numbers of customers
on either side.
If more than one vendor exists, the new ones will compete for location by situating
themselves between the existing vendor(s) and the largest possible set of customers
because customers will shop at the closest possible vendor.
Key idea is that each seller has the same expected number of customers.
If some customers have higher income or greater desire for the product, they weigh
more than others, and thus each seller can be said to face the same effective demand.
3
7.1 Physician Location Decisions
Now assume that the following table shows a small society with three cities and a
total population of 125,000.
If the total doctor:population ratio is slightly less than 1:10,000 (12 doctors), Cities A and
B will have the same ratio of doctors per person but City C will have none because with
a population of 5,000 it cannot compete with either City A or B to attract a new doctor.
Even if the total number of doctors increases to 23, each physician will find it more
profitable to enter Cities A or B than C because the effective demand per doctor would
be higher there.
Only when the total number of doctors exceeds 24 will City C finally attract a doctor.
4
7.1 Physician Location Decisions
A natural experiment conducted by U.S. medical schools during the 1970s:
Following the doubling of medical school enrollment, plus the influx of foreigntrained physicians, the number of active doctors per 100,000 persons
increased by almost 50 percent (from 146 to 214 per 100,000).
Can observe where doctors chose to practice medicine and how that changed
in response to the increase in new graduates.
Under one extreme model, the new physicians would select the most
desirable locations for practice, establish themselves, and induce enough
demand to keep themselves content.
Under the other extreme model (pure spatial competition), doctors would
resettle themselves in a way corresponding to that shown in Table 7.1.
This would result in the emergence of doctors in small cities where
none had previously been in practice.
5
6
7.1 Physician Location Decisions
Results correspond closely with the predictions of the spatial model.
Diffusion of specialists into small towns occurred only when the total
doctor:population ratios became sufficiently high to make the small towns
effective competitors for a new physician.
The aggregate ratio of doctor:population of each of these specialists
corresponds closely to the size of the town that can effectively compete for a
doctor within that specialty.
In 1979 there were about nine pediatricians per 100,000 population in aggregate, or
about 11,000 people per pediatrician.
The spatial competition model indicates that towns smaller than that should not
commonly be able to attract a pediatrician.
Data show that only a small fraction of towns with 5,00010,000 people had a
pediatrician, even in 1979.
More than two-thirds of the towns of 10,00020,000 citizens had attracted a
pediatrician by then, and nearly all larger towns had one.
7
7.1 Physician Location Decisions
This and other studies confirm the importance of economic forces in physician
location.
Doctors respond to effective demand by locating in regions with the highest
population:doctor ratio yet available.
As the outpouring of doctors from medical school and immigration has increased the
overall doctor:population ratio, doctors diffused across the country into increasingly small
towns, just as spatial competition requires.
Similar results for different specialties.
Similar to the decision to specialize
Both driven by the present value of future income streams and the cost of alternatives.
Both involve potential barriers to entry
8
7.1 Physician Location Decisions
Barriers to entry for specialties are wait times to get into residency or
postdoctoral programs; barrier to entry for location can be the ability to gain
admitting privileges to hospitals.
U.S. graduates have
been considered to be
more desirable and thus
have an easier time
gaining program
admittance.
Specialties with the
highest U.S. graduate fill
rates will have the
greatest excess demand
for residencies, etc.
9
7.2 Consumer Search and Market Equilibrium
How do doctors and patients match up, and how is price determined?
If markets were perfectly competitive, it would be fairly easy to find supply and
demand curves and a single market price.
In reality, many prices exist in any given market area, and demand for any
individual physician is downward sloping, not perfectly elastic as would be
expected in a competitive market.
See Box 7.1 for information on price dispersion.
Better described as a monopolistically competitive market.
Firms face downward sloping individual demand curves.
Average cost curve is U-shaped.
Firms will enter until the profit of the marginal firm is zero.
P=AC, but not min AC.
10
7.2 Consumer Search and Market Equilibrium
A More Refined Model
New approach (McGuire 2000) emphasizes the ability of the doctor to set the
amount of care the patient consumes, even if the price is determined separately by
insurance, government, or market forces.
Patient has some minimum net benefit desired for any medical encounter
Doctor attempts to maximize profits from each patient, but limited by the
minimum net benefit that the patient expects
The net benefit can be thought of as the patients best approximation of the best
net benefit from seeking treatment elsewhere (or deciding to forgo treatment).
This puts a natural cap on the ability of the physician to extract consumer surplus
from the patient, but the limits rest entirely on profit-maximizing motives of the
doctor, rather than on altruistic or other considerations.
11
7.2 Consumer Search and Market Equilibrium
A More Refined Model, continued
The patient comes to the doctor with some dollar value of NB that must be reached
Doctor picks a price and quantity that maximize profits, while preserving the minimum
NB for the patient.
Combination of raising the price and requiring that the patient consume x* quantity.
Consumer loses some surplus because of the extra consumption.
The consumer would prefer to purchase x**, where the demand curve and price
intersect, but the doctor only offers x*.
The patient loses the dark black
triangle (between x** and x*), and the
medium-gray triangle to the left of x**
under the demand curve has the same
area.
12
7.2 Consumer Search and Market Equilibrium
A More Refined Model, continued
A key issue is how doctors would set quantity consumed for each patient.
Has implications for many aspects of physician behavior
Induced demand, discussed later in the chapter
Government programs may act to reduce the quantity-setting choices of physicians.
Doctor-patient relationships:
Building a relationship may increase the physicians ability to diagnose and to
prescribe treatments that the patient will comply with.
Increases ability of the doctor to extract much of the increasing net benefit over time.
Sets aside widespread concerns about the ability to use demand-curve information
in health care to make statements about consumer well-being (consumer surplus).
Because McGuires structure predicts virtually every observed induced demand
phenomenon, it allows us to understand induced demand and at the same time carry out
welfare-analysis calculations.
13
7.2 Consumer Search and Market Equilibrium
Quality Added to the Picture
Dranove and Satterthwaite (2000) model of equilibrium cost-passthrough that
incorporates the effects of both quantity and quality on supply and demand
Quality has two characteristics: clinical quality and patient amenities, each of which can be produced with its own
marginal cost structure.
Cost of producing a medical visit as C(q, x, y) where q is the number of visits produced, x is the
clinical quality, and y is patient amenities.
Marginal cost of producing a physician visit is a simple linear function MC = a + bx + cy.
That is, it costs a per visit with minimal quality, with linear additions of b per unit of clinical quality
(e.g., time spent with the physician) and c per unit of patient amenities.
Elasticities of demand (quantities) for visits to a doctors office similar to the standard price elasticity:
?p is the traditional price elasticity of demand, ?x is the clinical quality elasticity, and ?y is the patient
amenity elasticity.
Monopolistic competition framework allows for a world where patients are either immunized from price
(e.g., with excellent health insurance) and hence relatively insensitive to price, or are more sensitive
to price (e.g., with no insurance).
The markup rate in this world is defined by ? = ?p/(1 + ?p), and equilibrium price is P* = ? MC.
If the elasticity of demand facing a single provider is 2.5, then ? = 2.5/1.5 = 5/3 = 1.6666
and
P* = 1.6666 MC.
14
7.2 Consumer Search and Market Equilibrium
Quality Added to the Picture, continued
The most interesting part of the Dranove and Satterthwaite work defines how
equilibrium quality characteristics come into being.
Equilibrium quality levels are defined as x* = (?x/?p)/(b/P*) and y* = (?y/?p)/(c/P*).
For example, with x (clinical quality), bx*/MC = ?x/(1 + ?p), where bx*/MC is the proportion of total
marginal cost accounted for by clinical quality.
A similar formula holds for amenities (y).
The more consumers respond to quality and the less they respond to price, the more emphasis the
physician-firm will place on high quality. Similarly, if consumers dont respond much to quality, in
equilibrium, a rational physician-firm will devote relatively little effort to provide quality.
The Dranove and Satterthwaite (2000) model directly predicts that physician-firms will
put less effort into producing quality under managed care than they would in a
traditional fee-for-service market.
Caveats:
Makes sense only in a world where the demand elasticity exceeds 1.0 in absolute value.
These are demand elasticities facing a single physician-firm, and no good measurements exist for
parameters such as ?x or ?y.
15
7.2 Consumer Search and Market Equilibrium
Search in Monopolistic Competition
The most powerful analyses of market behavior have employed the concept
of consumer search in tandem with the monopolistic competition model.
If patients search for the best prices or other desirable factors, then the firm must
consider the tradeoff between potentially higher profits from higher prices and the
chance of losing patients.
The more patients search, the more competitive the market will be.
Allows for different prices for different firms, depending on their cost structure.
Health insurance plays two roles.
Reduces the price elasticity of demand, thus increasing price dispersion
May change incentives for patients to shop
Less if complete coverage reduces incentives
More if insurance lowers the cost of sampling other providers
16
7.2 Consumer Search and Market Equilibrium
Search in Monopolistic Competition, continued
Growing evidence that doctors create a style of practice that best matches
their own preferences and then attract patients who also prefer that style
There may be less search in markets with many doctors because it is less likely
that anyone will have information about a specific doctor.
But price information should be easy to obtain even in a large market.
Patients are likely to ask friends to obtain information about doctor styles, and the cost of this type of
information gathering should be the same regardless of market size.
See Box 7.3 for more discussion of patient search.
Higher prices in large markets could be consistent with less patient search, but
could also be explained by factors such as higher values of time in larger
communities, leading to practice styles with less waiting time but higher costs.
17
7.3 The Consequences of Incomplete Search
Incomplete search leads to price dispersion and higher prices for those who
search less.
Gaynor and Polachek (1994) estimated both the effects of incomplete consumer
information from limited search and incomplete physician information on how
much the consumer would have been willing to pay for the service.
On average, physicians missed 39 percent of the highest price they could have
charged for routine office visits, but patients paid slightly more than double what the
physician would have sold the service for if the patient had complete information about
all providers prices in the market.
Corresponds well with the predictions of the monopolistic competition model.
Doctors were closer to the highest price than patients were to the lowest price.
Information was weaker for procedures done less often, and so patients overpaid by
a greater margin for those procedure.
18
7.4 Actual Search by Patients
One study shows how often and for what reasons patients do search for a
new doctor.
In a survey of 632 households in the Salt Lake City region in 1974, residents were asked
about their use of doctors, including whether they had ever changed doctors.
About 60% had changed doctors, and another 10% wished to but were deterred in some
way (about the same rates for both high and low socioeconomic groups).
See Figure 7.4 (next slide)
Major reasons given were the delays in getting an appointment were too long, they didnt
like the quality of care, they sought verification of a diagnosis, or the price was too high.
About one-quarter of those who switched used the recommendation of a friend (see
previous discussion about search in Pauly and Satterthwaites model).
19
7.4 Actual Search by Patients
20
7.4 Actual Search by Patients
A 2011 survey of consumers and physicians measured patients reasons for
changing doctors and physicians beliefs about the likelihood of a change for the
same reasons.
Doctors believed that 80 percent of patients who switch would do so either because they
moved or the doctors office stopped accepting their insurance.
About 40 percent of patients said they would only leave their doctor for reasons of moving or
the doctor no longer accepting their insurance.
Almost 80 percent said they would change doctors for reasons of service quality or
convenience.
Only 10 percent of doctors and patients thought that people would leave for a lower price.
Both this and the earlier study suggest that consumer search for price is limited.
21
7.4 Actual Search by Patients
A 2017 survey suggests that search may be increasing.
The survey found:
Half of Americans sought price information before going to the doctor. Those with
higher deductibles were more likely to seek price information.
Only 20 percent of Americans actually compared prices across providers. Of those
who did this, over half reported saving some money.
70 percent of Americans do not view lower prices as a sign of lower quality, and
most comparison shoppers chose the lower-priced provider.
Sources of price information are varied: friends, relatives, colleagues, insurance
companies, doctors, and medical office receptionists were all sources of price
information.
Almost two-thirds of Americans want more information about prices.
22
7.5 Advertising and the Costs of Information
Many states once prohibited advertising for professional services.
This was found unconstitutional, and now all states allow advertising.
Costs:
Distortion of patient choices
Possible higher prices due to costs of advertising
Reduction of quality if price competition increases through advertising
Benefits:
Reduced cost of providing information to consumers
Attracting customers can lead to larger firms, leading to lower costs (and prices) due to
economies of scale.
Advertising is most common for procedures like laser surgery to correct vision and
plastic surgery, where there is cosmetic appeal to the consumer and little
insurance coverage.
23
7.6 The Role of Licensure
The government (at various levels) licenses physicians, registered
nurses, dentists, and those in many other healing professions.
Licensure is commonly supported in the belief that it protects the
safety of the public from incompetence by practitioners of a
profession.
Licensure has both potential good and bad features.
Good: maintenance of quality and the prevention of harm to patients,
especially where information is hard to obtain.
Can provide a floor on quality of care upon which consumers can rely without
any investigation of any particular provider.
Can also increase search by making price information seem more useful (in the
sense that a low price would not imply too-low quality).
Bad: creates a barrier to entry, decreasing competition and creating
monopoly rents to those who obtain a license.
24
7.6 The Role of Licensure
On net, licensure can have both economically desirable and
undesirable features.
The capability for limiting entry obviously has some economic liabilities
associated with it.
However, the quality control capabilities of licensure are probably positive.
One cannot say that licensure is necessarily a benefit or a harm to
consumers.
Medical specialty boards have aspects about them that are similar
to licensure, except that they are voluntary rather than mandatory.
Every doctor is supposed to have a license, but specialty certification is
completely optional.
Since specialty boards cannot limit entry into the medical profession, they
primarily serve as indicators of quality.
25
7.7 Estimates of the Demand Curve Facing PhysicianFirms
Doctors disperse themselves into various regions; what market conditions do they face then?
One study has estimated the demand curve confronting primary-care physician-firms using
survey data from the American Medical Association (McCarthy, 1985) for firms located in
large metropolitan areas (defined as those with a population of more than one million).
The price elasticity of the demand curve facing a typical large-city primary-care physician is quite large.
In all of the various forms estimated, this study found the firms demand curve to have an elasticity of 3 (or
larger, in absolute value).
Do not confuse this with the elasticity of the market demand curve, is about 0.2 to 0.3.
The individual firm loses customers to other firms by raising prices, where the market as a whole loses
customers only when they drop out totally due to higher prices.
An elasticity of 3 certainly confirms the validity of using something other than a perfectly competitive
model to explore physician markets, but it also shows that the departures from purely competitive markets
cannot be huge.
Longer waiting times in the office reduced demand for physician visits, holding price constant.
The estimated waiting-time elasticity confronting physician-firms ranged from 0.4 to -1.1 in various versions
of the model estimated.
26
7.7 Estimates of the Demand Curve Facing PhysicianFirms
Contrary to previous empirical findings (which show higher fees with higher density),
this study, which used data on individual firms rather than data at the county or
standard metropolitan statistical area (SMSA) level, found that higher physician density
in a region reduced the demand confronting a physician.
Corresponds with to the standard monopolistic competition model, in which more firms in a
community imply fewer customers per firm.
Shifts inward the demand curve facing any firm, thus reducing the price it can charge.
Strengthen the belief that something other than difficult search makes prices higher in markets with
more doctors.
The optimal price for a monopolist is inversely related to the demand elasticity
confronting the firm.
The optimal price is found by setting P = MC/(1 + 1/?), where ? is the demand elasticity facing the
firm.
If ? = 3, then P = MC/(1 1/3) = (3/2) MC. Put differently, there would be a 50 percent markup of
price above marginal cost.
27
7.7 Estimates of the Demand Curve Facing PhysicianFirms
Excess Capacity
Monopolistically competitive models predict excess capacity, production at a
scale at which AC is not minimized.
Most likely to arise in areas in which the demand curve facing a single physician-firm is
least elastic.
Markets in which search is least likely to take place and where insurance coverage is
greatest offer likely targets to find considerable excess capacity.
Hughes et al. (1972) examined the actual working hours and practices of surgeons,
finding persistent excess capacity among surgeons, often with as much as 40 percent
slack time in surgeons practices.
Excess capacity is more likely to surface in other ways now that managed
care has become more prominent.
Managed care plans either hire surgeons directly on or else arrange for selective
contracting with a narrow range of surgeons who (in exchange for a lower fee) get a
considerable volume of business referred to them by the insurance program.
In either case, one finds that some surgeons appear very busy while others may
actually become unemployed or retire.
28
7.8 Induced Demand
McGuire (2000) carefully specified provider-induced demand as occurring when the physician
influences a patients demand for care against the physicians interpretation of the best interest of
the patient.
Implicitly, the influence financially benefits the physician.
Physician disagreement about the proper treatment strategies across geographic regions would not
constitute induced demand in general because we see no systematic differences in the way physician
incentives differ across regions in ways that would explain geographic practice variations.
The central idea stems from the observation that (with hospitals) areas that had a larger hospital
bed supply had more hospital utilization (Roemer, 1961).
Economists dismissed the relevance of such simple data with the observation that a competitive market
would produce such results, with supply following demand into areas of high demand.
Fuchs (1978) estimated the demand for surgical procedures in a number of SMSAs, holding
constant price, income, and other relevant variables and using the physician supply predicted to be
in a region from economic forces that could be measured.
Found that as that predicted supply increased by 10 percent, the number of surgical procedures increased
by 3 or 4 percent.
This type of result was more disquieting to neoclassical economists because it dealt with the earlier
refutation and still produced the result that supply could apparently create its own demand.
See Box 7.4 for examples of the existing disagreement on the subject.
29
7.8 Induced Demand
A large variety of studies have offered alternative explanations for the positive
association between supply and quantity demanded.
More doctors may lower time costs to patients.
There may be something wrong with the statistical analysis.
Increasing physician supply could lead to both more office visits and fewer
hospital admissions through a profit-maximizing substitution of outpatient for
inpatient care.
None of the related studies could show that inducement was NOT occurring, just that
there were other possible explanations.
If inducement can occur, some limit to inducement has to take place, or it would
increase without limit.
Target incomes for doctors
Feelings of guilt may increase with increased inducement.
Patient wariness may increase with the level of inducement.
30
7.8 Induced Demand
One problem is that the methodologies used to examine induced demand cannot
distinguish between a case where higher demand attracts more supply and a case
where supply induces demand.
Dranove and Wehner (1994) used the same statistical approaches that others had
used, but they attempted to explain physician-induced demand for childbirths.
The idea that physicians could induce demand for childbirths is highly improbable.
Their analysis showed that the standard approach to this problem leads to the absurd
conclusion that obstetricians induce demand for childbirths.
Because no one believes that this could actually occur, the only other logical conclusion
to draw is that the methods themselves may be faulty.
As in McGuire (2000) consider the consequences for demand creation with a
regulated price.
General tests of demand inducement most often follow one of two approaches.
1. The first begins with an exogenous shift in aggregate demand occurs that causes
physicians to respond, such as the invention of a new drug that would reduce
demand for physician services.
2. The second approach studies what happens when regulators or insurance plans
reduce the price for a specific service.
31
7.8 Induced Demand
Exogenous Shifts in Aggregate Demand
A class of induced demand tests looks at what happens when something changes in
the market to shift (usually to reduce) aggregate demand for a physicians service.
Gruber and Owings (1996) studied state-by-state differences in the reductions in birth
rates (which reduce demand for obstetricians) in recent decades.
Examined the frequency with which the birth takes place by Caesarian section (C-section) rather than
by normal delivery.
Overall in the 19701982 period, birth rates fell by 13.5 percent, while the number of physicians per
capita was increasing.
Different states had different declines in birth rates.
Found that a 10 percentage point fertility drop led to a 0.6 percentage point increase in the C-section
rate.
Because the average C-section rate is about 20 percent, this means that a 10 percent change in birth
rates created (relatively) about a 3 percent change in the rate of C-sections.
32
7.8 Induced Demand
The Physician as Agent for the Patient
A conceptual approach that has proven quite useful in these discussions
relies on the game-theory concept of agency, in which a principal (the
patient) delegates authority to an agent (the doctor) to make crucial decisions.
Goals of principals and agents may not be the same, and it may not be
possible for the principal to fully monitor the agent.
Various arrangements (contracts, agreements, and rules) emerge to try to
make the agent do what the principal wants, but these are difficult to enforce
in many settings.
Dranove and White (1987) provide a good discussion of the role of agency in
health care delivery.
33
7.8 Induced Demand
The Doctor/Agent Making Referrals
The previous chapter discussed the possibility of fee splitting.
Within the context of a principalagent model, when Dr. C (a cardiac surgeon) agrees
to split any surgical fee with Dr. A (a referring cardiologist) or Dr. B (a referring internist)
for any surgery undertaken, the advice from Drs. A and B will be distorted.
Particularly if the patients of Drs. A and B do not know about the arrangement, they will
be too willing to consult with Dr. C and, therefore, too willing to undergo surgery at the
recommendation of Dr. C.
An honest principalagent relationship between patient and doctor can help solve the
problem of asymmetric information.
If the agent (the doctor) really does provide unbiased advice about medical treatments,
particularly those regarding referrals, then it would not matter how uninformed the
patient was because the doctor would always provide good advice.
One important role of medical ethics may be to encourage such honest agency
performance.
34
7.8 Induced Demand
Self-Referrals: Doctors Referral to Self-Owned Facilities
Doctors may refer patients to independent facilities in which they hold a
financial interest, such as diagnostic radiology, medical laboratories, etc.
A common practice, with, for example, at least 40% of Florida doctors having an
investment in a joint venture of this type.
Do these joint ventures enhance profits or improve patient care?
Studies have shown that referral rates to these facilities are far higher and prices
charged are greater.
There are also indications that quality of care may be lower.
Potentially more important area for demand inducement.
Recent studies by both economists and the government support significant increases in
referrals and billing for such faci
