Economics - Paying Providers Of Health Care - Physicians As Profit Maximizers

Front 1

Model Equations

Back 1

Profit = px-cx
Constraint = B(x) - px >/ NBo

Front 2

Implications in perfect information/perfect competetion

Back 2

B(x) = c

- switching doctors yields same net benefit because of the perfect information available in this scenario.

Front 3

Implications in imperfect information/imperfect competetion

Back 3

- Physicians control both price and quantity

- Supplier induced demand

- Physician will push x past consumer's utility maximizing point

- NBo < NB* doctor has power due to high cost of patient switching providers

- But physician can force price and quantity of services past the utility maximizing point of the consumer due to the characteristics of monopolistic competetion.

- Physician will also charge different prices for different patients depending on their net benefit, ie will charge more if the cost of switching for one patient is higher compared to another patient.

Front 4

Implications in fixed and copayment scenarios

Back 4

- Since physician no longer has control of price, will increase quantity of services provided in order to meet their target income (supplier induced demand) Also, according to this model, if the price of services goes up, the doctor may lower the quantity of services provided in order to meet their target income.

Front 5

Implications when quality is introduced

Back 5

- Number of patients you get as doctor depends on the quality you provide.

- Profit maximizing level of quality depends on how sensitive demand is to quality

- the more sensitive demand is to quality, the more quality you will provide

- increasing payment increases increasing quality

Front 6

Model Quality equations

Back 6

NB = B(x,e) - cp
Profit = n(NB) - c(q)