Physician Induced Demand and Financial Incentives - Evidence from Large-Scale Fee Changes
This paper analyzes how physicians adapt their provision of medical services when financial incentives change. Exploiting a plausibly exogenous and large-scale reform, we find that physicians are not immune to monetary incentives in a fee-for-service system. We isolate two response channels: substitution and volume expansion. We find that providers provide more (fewer) services that gained (lost) attractiveness. Further, physicians increase consultations, especially after substantial revenue losses. Finally, volume expansion is the main driver of aggregate cost changes whereas substitution is of limited importance for aggregate costs. This finding encourages the use of value-based payment