An estimation of the demand and supply for physician services using a panel data

Abstract

Using the single-equation and simultaneous equations methods, demand and supply for physician services at medical practices are estimated with panel data, which is primarily based on American Medical Association divisional surveys. Fixed effects and no-effects models are employed for estimation of the parameters of the simultaneous equations and their elasticities. The results suggest that the demand is highly income inelastic. However, private insurance and Medicaid raise the rate of utilization. The adverse effect of uninsured is also evident, though it is not as high as private insurance. Evidence also supports the demand inducement hypothesis and points to the rising demand for health care as the U.S. population is aging. The supply function parameters generally demonstrate their expected pattern. It is notable that the malpractice liability premiums exhibit a negligible effect on the supply of office visits.