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. 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. The doctor-patient relationship is key to the practice of healthcare and is central to the delivery of high quality efficient care while maintaining costs. Controversy surrounds the extent and existence of supplier induced demand (SID). Some believe it is ideological rather than evidence-based. Validity of results from different models is reported to lack consensus, making policy difficult to develop and implement. Normative definitions cast negative aspersions on physicians indicating they act as imperfect agents for their own self-interests. A positive perspective of SID focuses on a physician's ability to shift a patient's demand curve to the right. Demand inducement refers to a 'physician's alleged ability to shift patients' demand for medical care at a given price, that is, to convince patients to increase their use of medical care without lowering the price charged.' Economists have explored how this additional care will affect patient welfare. In health economics, supplier induced demand (SID) can be defined as the amount of demand that exists beyond what would have occurred in a market in which patients are fully informed. In healthcare, a physician acts as an agent on behalf of the patient (the principal) guiding them to make the best possible treatment decisions. This agency relationship is influenced by information asymmetry between a physician and a patient, where it is assumed that the physician has more knowledge about diagnostic and treatment options than the patient. Asymmetry of information can also be influenced by the physician's own clinical experiences, expertise, and professional judgment as sometimes a patient will request their physician's personal opinion to aid them in making a healthcare decision. A physician who is a 'perfect agent' is one who would make recommendations for a patient that the patient would make for themselves if they had the same information. SID can occur because of a breakdown in this agency relationship and happens when a physician recommends or encourages a patient to consume more care than is required for their medical problem, for example, ordering tests that the physician knows are not needed to make a diagnosis or ordering treatments that the physician knows will have minimal benefit. 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. 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. 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. 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. Pay for performance may also provide a strategy to discourage overuse of unnecessary, low-value interventions by reimbursing for quality of care delivered. 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. 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. It is unclear the extent to which SID explains geographic variations in care. It is a complicated topic. It is difficult to know how much is done explicitly to raise a physician's income and how much is practice style or professional uncertainty. Physicians who are more entrepreneurial may be interested in maximizing income. Surgeons may have more opportunity to manipulate demand. They may be more enthusiastic about certain procedures they perform because they generate more revenue or because they value the surgical treatment. The simple adage, 'if you build it they will come,' applies to SID and the medical profession. It appears when resources are available, overutilization occurs even when improved quality and outcomes are uncertain. This occurs daily in hospital intensive care units, at primary care physician offices and with overutilization of expensive radiologic technology and laboratory testing. 'Research suggests that those who invest in imaging equipment order more CT and MRI tests than doctors who haven't made the investment.' Analysts report that physicians reflexively respond to receiving positive test results by ordering more tests. Variation in medical practices can result in SID without producing increased quality outcomes. When standardized treatment pathways are unavailable to agents and principals a degree of uncertainty exists resulting in increased requests for unwarranted services. As a result, overutilization of supplies and services may occur without evidence of improved quality. Due to the number of contributing factors for the consumption of healthcare resources, it is difficult to isolate instances of supplier induced demand. However, there are many reasons for SID in healthcare that are important to understand including reimbursement rates, competition, physician incentives and practices. Increased levels and costs of technology, as well as changing practices and the lack of evidence-based medicine or defined standards of care allow more room for supplier induced demand. To further elaborate, take the example of PSA (prostate specific antigen) testing and early stage prostate cancer. Published guidelines have varied over the past few decades enough to cause doubt in a true standard of care. With a number of treatment options including minimal to no healthcare interventions (watchful waiting, active surveillance, surgery, radiation therapy, etc.), patients may be influenced by providers to consume more healthcare than they would have otherwise given the asymmetry of information and marketing of treatment options from hospitals, physicians and industry. Externalities which influence supplier induced demand include direct to consumer marketing and patient susceptibility to marketing to the extent that demand induced supply is now being documented in health economics. Physicians are by nature and duty patient advocates, guiding the patient through joint decision making. This in part stems from a large knowledge differential between the two, a term known as asymmetric information, and evidenced by the differential between patients and physicians' interpretation of medical terms, underscoring the need for physicians to cross examine patients to verify whether they understand the terminology used in the clinical encounter. While the physician bears the brunt of the knowledge differential, the patient is also responsible for sharing their entire medical history, concerns, barriers to and preferences for treatment in order for the physician to be an effective advocate for their health . In effect, the patient provides all relevant information to the physician and relies on the physician to make the clinical decisions for them. This relationship requires a great deal of trust on the part of the patient, assuming that the clinical decisions made solely focus on patient health.