An econometric model of physicians' services in Canada
Date
1981
Authors
Coffey, David B. (David Barry)
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Abstract
An econometric model is developed for the market for physicians' services under Canada's health care system. The model consists of three equations; the first representing the per capita demand for physicians' services, the ~1 second representing the supply of services per physician and the third representing the per capita supply of physicians. The model is a block recursive system of equations where two of the equations form a simultaneous system.
Three steps are followed in developing the model. An initial specification of the model is made based on a review of the literature on health economics and an analysis of the structure of the Canadian health care system. In the initial specification the current theory from the literature is put into context with the two dominant features of the Canadian health care system; free hospital and physicians' services for all Canadians and physicians paid on a fee for service basis by government operated insurance.
This initially specified model is then tested by applying ordinary least squares to each of the three equations. Variables in each equation that are not statistically significant are eliminated one by one until only statistically significant variables remain in the model.
Finally from the model, containing only statistically significant variables, simultaneous equation bias is removed by applying two stage least squares to the simultaneous equation system.
The elasticities estimated in the regressions are consistent, for the most part, with our a priori reasoning and with the results reported in the literature. As is the case in most studies of physician's services the physician:population ratio is the dominant factor in determining the demand for physician's services in Canada. Real income per capita is also a significant determinant of demand even though there is universal medicare in Canada.
Physician productivity is strongly influenced by the fees paid for physician's services. The elasticity of productivity with respect to fees is negative indicating each physician provides fewer services as fees rise. This suggests physicians might have a backward bending labour supply curve.
The physician : population ratio is determined to a large extent by the per capita demand for services. Fee levels and the attractiveness of an area also influence where physicians locate their practices. A somewhat surprising finding is that an increase in the number of hospital beds per capita results in a decrease in the physician:population ratio suggesting hospitals are a net substitute for physician's services.