Doctors and Their Workshops: Economic Models of Physician by Mark V. Pauly

By Mark V. Pauly

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Additional info for Doctors and Their Workshops: Economic Models of Physician Behavior (A National Bureau of Economic Research Monograph)

Sample text

The problem then is to maximize expected utility: (4) subject to constraint (3). Solution of this problem implies that M is chosen so that 7riU' (gil) == 7rjU' (gil)' where 7ri and 7rj are the probabilities attached to two alternate values of gl. In effect, the consumer chooses a level of M that would be somewhat appropriate for all possible states, but ideally appropriate for almost none. Now assume that the consumer can obtain information on H o or gl from the physician. In order to explain how the consumer will respond to any given information, it is necessary to explain how he judges the accuracy (or diagnostic and prescriptive skill) of a physician.

A variable to represent nonlabor inputs other than beds was constructed by subtracting from nonlabor expense the product (BEDS X 1000), where $1000 is an estimate of the annual depreciation expense per bed on beds alone. Sensitivity of the results to this assumption will be discussed below. Output was defined as the number of cases treated, as measured by the number of admissions. While it would have been desirable to have an explicit measure of casemix, such data were not available. Because the sample hospitals are the sole hospitals serving relatively similar populations and are not major teaching hospitals, variation in casemix is not likely to be great.

Depending upon the amount and type of physician fee insurance, the result may be a decrease in physician utility. Here, at least, we have a reason why resource misallocation occurs. One message for policy is that what is likely to be important is the relatively low marginal product of specialists, especially of surgeons. Given the high cost of training surgeons, one may wonder whether the hospital output, even if that output is thought to be appropriate in some sense, justifies those costs. Of course, in practice, increases in physicians are likely to be accompanied by increases in hospital inputs; the hospital inputs mean more output, but also more cost.

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