Physician treatment decisions in a multiple treatment model. The effect of physician supply

Abstract

This paper develops a neoclassical utility maximization model of physician behavior in which the physician determines the price of physician office and hospital visits, the utilization rates for physician office and hospital visits and hospital days, and the resources and physician time inputs in the production of visits. The model assumes that the physician acts as a perfect agent for the patient. The analysis traces substitutions between physician office visits, physician hospital visits, and hospital days in response to changes in physician supply. The analysis also traces physician supply induced changes in the input mix used to produce visits. The substitution effects of physician supply are then used to reinterpret previous statistical estimates of the physician supply elasticities of per capita utilization of physician office visits and hospital days, length of visit, waiting time, and physician workloads.