Market+for+physician+services+-+Chp.+12

=Market for Physician Services=

Physicians in the U.S.
The United States has seen a drastic increase in the number of physicians, most of which are actually involved with direct patient care, from 1975 to 2003. In fact the average number of people per doctor dropped from 747 people per doctor in 1970 to only 430 people per doctor in 2003. Although it seems as if this is a sufficient supply of physicians, the [|distribution of doctors] across the country is a problematic point. Specifically the problem rests in the overpopulation of doctors in metropolitan areas compared to nonmetropolitan areas. Although it is logical that more doctors are in larger populations, the oversupply of doctors in these large cities makes it difficult for people in non metropolitan areas to obtain adequate healthcare. Recognition of the problem led to some improvements with a result of nonmetropolitan areas that have a relatively large town experiencing the greatest growth percentage in physicians per 100,000 people during the 1990's.

Further complicating the situation is the belief by many healthcare analysts that there are far too many specialized doctors in the U.S. and not nearly enough [|primary care physicians]. While many health insurance companies try to restrict the use of speciality doctors, the ratio of specialists to primary care physicians continues to rise. Increased usage of specialized physicians could lead to higher costs of medical care than if primary care physicians were better utilized. This is a result of the tendancy of specialized doctors to overuse costly procedures, tests, and medications. If the numbers continue as they are today, it is predicted that the U.S. wil experience a shortage of primary care physicians and a surplus of speciality doctors by the year 2020. = =

The Mode of Practice
The physician services industry contains a large number of sellers, moderate barriers to entry, a certain amount of product differentiation, and some information imperfections. A physician is a person who is licensed to practice some type of human biological medicine. Economists view the provision of physician services as a production process that involves a multitude of inputs aside from physician labor. It includes other labor inputs such as: nurses, nurse practitioners, physician assistants, medical technicians, and receptionists, along with various nonlabor inputs like a office space, medical supplies, and diagnostic equipment. Self-employed profit-maximizing physicians act as entrepreneurs when they combine many different inputs, like their own labor, to produce medical care for their patients. In 1989, 70 percent of physicians were self-employed, and by 2001 the number dropped to 60 percent. About 33 percent of all physicians, excluding those practicing in instituitional settings, were engaged in solo practices. Now a greater percentage of self-employed physicians are involved in larger practices of four or more. With economies of scale forcing physicians away from smaller practices into larger group practices. There has also been an increase in the number of physicians who are not self-employed that are being paid on a salary basis.

Buyers of Physician Services
Total expenditures on physician services result from both the government and private sectors. [|Government spending], which is made up mostly of [|Medicare] costs, accounts for about 1/3 of the total spending while the private sector accounts for the remaining 2/3 of spending. Spending by the private sector can be broken down into approximately 50% of outlay coming from private insurance companies and slightly more than 10% coming from personal out-of-pocket expenditures.

The presence of managed care plans profoundly effected the market for physicians by introducing the concept of insurance companies negotiating prices with physicians as part of a preferred group of providers. The introduction of managed care immediately began placing strong pressures on physicians to reduce costs in order to make up for the lower prices insurance companies would be paying. The insurance companies used strategies such as alternative compensation schemes, utilization reviews, and quality controls in order to encourage physicians to cut costs within their practices. The overwhelming growth of managed care plans resulted in at least 88% of all practicing physicians being engaged in at least one managed care contract in 2001. The different types of managed care plans have different objective and offer varius incentives for physicians to participate. The three major types include: > Further information regarding the objectives of each [|Managed Care Plan] as well as the restrictions of coverage are widely available on the internet.
 * Health Maintenance Organizations (HMO)
 * Preferred Provider Organizations (PPO)
 * Point-of-Service (POS) plans

Barriers to Entry
It is generally accepted that substantial barriers to entry in the market for physician services impede competition primary by legally limiting the supply of physicians. A minimum education requirement of a degree from an accredited medical school, participating in an internship or a residency program at a recognized institution, and passing a medical exam is required before being allowed to practice medicine. These requirements takes a lot of time and money costs and raises the opportunity cost of becoming a medical doctor.

The necessity of government intervention has also been justified based on the possibility that a negative supply-side externality will occur if incompetent physicians are allowed to practice medicine. For example, if a physician misdiagnose a patient infected with some sort of STD due to some faulty test or equipment, others may contract the STD. The government intervenes to make sure consumers do not become innocent victims of the malfeasance. Barriers exist to protect the economic interests of physicians.

Physician Services and the Inflation Rate
The amount of money spent of physician services, to no surprise, has drastically increased over the past decade. The actual rate of increase in the prices paid for these services has increased at a an anuual rate which is higher than the inflation rate. However, although the price of physicians is increasing more than the [|inflation rate], the rate increase is actually less than the overall rate increase for medical services as a whole. Therefore, although the rates of physicians are increasing faster than inflation, these rates aren't increasing as much as those of other health services such use of particular diagnostic machinery or use of medication. This is illustrated below using the [|Consumer Price Index] for both medical and just physician services.



The data for inflation rate of physician fees actually overstates these fees due to not reflecting discounts due to insurance coverage, not considering improvements in physician quality over the years, and not reflecting technological improvements. Considering the significant price increases it is determined that almost two-thirds of the significant increases in physician service expenditures is actually a direct result of the significant price increases. Actual real spending on physician services only increased approximately 3% each year during this same period from 1990 to 2003.

1. True or False? Based on the current trends in primary care vs. specialized physicians, it is predicted that there will be a surplus of primary care physicians and a shortage of specialized physicians by the year 2020.** ans: False. The current situation suggests that there will be a surplus of specialized physicians and a shortage of primary care physicians by 2020.
 * __Questions:__

A) nurses B) physician's assistants C) office space D) all of the above are inputs to physician services ans: D; all three listed inputs are in fact included in the economists view as inputs into the final product of physician services
 * 2. According to economists, physician services include all of the following inputs except**

A) Increased from 70% to over 95% currently B) Stayed the same since private-practices are the most profitable method of service C) Decreased and eventually led into more physicians joining practices with 4 or more other doctors to form group practices D) Decreased drastically leading to only 15% of physicians being self employed by 2001. ans: C; Economies of scale have shifted single-practice physicians to join together making larger group practices. This definitely led to a decrease in the number of self-employed physicians and an increase in group practice.
 * 3. Since 1989 the number of self-employeed physicians has:**

A) The private sector is responsible for less of the spending on physician services than the government is largely due to the fact that the percentage of elderly people on medicare is increasing. B) Of the private portion of expenditures on physician services, private health insurance provides only 10% of the spending. C) The government is responsible for approximately 33.3% of physician servics spending while the private sector accounts for the remaining 66.7%. D) Spending by the private and public sectors on physician services is only slightly different.
 * 4. Which statement about the buyers of physician services is true?**

ans: C) The government is defintiely responsible for less spending than the private sector; furthermore, the difference is very significant no only "slightly different." Also, private health insurance accounts for 50% of private physician service expenditures, and out of pocket expenses make up 10%.


 * 5. True or False? The rate of increase in physicians fees has increased annually at a greater percent than both the inflation rate and the rate of total medical services making physicians services the fasting increasing of all medical services.**

ans: False; The rate of physician fee increase is greater than the inflation rate but less than the rate of increase in overall medical services. Thus, there are other types of medical services that are increasing at the same or even higher rates.

__**References:**__

Managed Health Care. (2007). Accessed on April 25, 2007. http://www.americanheart.org/presenter.jhtml?identifier=4663 Neun, Stephen P., and Rexford E. Santerre. //Health Economics: Theories, Insights, and Industry Studies.// 4th Ed. Mason: Thomson South-Western, 2007.