Supplier-induced Demand


Health Economics

  • The effect that doctors (or some other group of professionals), as providers of services, may have in creating more patient demand than there would be if they acted as perfect agents for their patients. There appears to be some adjustment of physician behaviour in order to maintain incomes. Supplier-induced demand (SID) has commonly been alleged to arise when there is an increase in the number of doctors; however, the fact that the supply of services increases as doctors increase may be the ordinary result of an increase in supply (demand constant) rather than the result of a shift in both supply and demand. Testing for the presence and extent of SID has been bedevilled by this identification problem. Other problems arise through the suspected effects of unmeasured or omitted variables. Fee-for-service is often held to encourage unnecessary supplier-induced demand, though the evidence for this is hotly contested. The debate is clouded by a numberof other mysteries: how 'unnecessary' is any demand that mightbe induced? Might not inducement be a good thing in the presence of certain kinds of externality? The German system for remunerating doctors has been found to be conducive to inducement (see Benstetter and Wambach, 2006).
  • acronymSID
    (written as supplier-induced demand)
  • synonymPhysician-induced Demand
    (written as supplier-induced demand)