Supplier-Induced Demand in China's Health Service Markets.

Abstract

This thesis examines the relationship between physician density and supplier-induced demand (SID) in Chinab s health service markets for years 2004 and 2006. The theoretical model is especially designed for Chinab s current institutional environment. The theoretical results suggest that in Chinab s health care system the fee levels set by physicians may not change with an increase of physician density. Although there may exist supplier-induced demand, its extent will decrease with physician density. Data from China Health and Nutrition Survey are used for the empirical tests. Regression results on determinants of hospitalization probability, the cost per episode for outpatients, and the cost per episode for inpatients all support the theoretical model. Although the cost of treating a cold is not related with physician density for urban areas, it increases with physician density for rural areas in both 2004 and 2006.