Supplier Induced Demand - Theories To Explain Supplier Induced Demand

Theories To Explain Supplier Induced Demand

Target Income Hypothesis 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.

Professional Uncertainty Hypothesis 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.