Econometrics Supply of Medical Services

Are Family Physicians Good for you?

Most public health officials believe that increasing the supply of primary care doctors is almost always a good thing, while increasing the number of specialists can have mixed results. One problem is that physician supply is endogenous. One may believe that physicians prefer to locate in wealthier areas. If wealthier people are also healthier, then a correlation will exist between physician supply and health even though no causality exists.

In order to isolate the direct causal effect of increasing family physician supply, Gravelle, Morris and Sutton (2008) use an instrumental methods methodology. The two instruments for physician supply are: an index of local area housing prices and average age-related capitation payments. Since physicians location decisions are regulated by the Medical Practices Committee and do not include a cost-of-living adjustment, we would expect lower physician supply where there housing prices are higher. Local area average capitation payments should not effect any individual’s health, but should attract increased family physician supply.

These instruments are implemented on the Health Survey of England data set. Physician supply comes from the General Medical Services (GMS) Statistics database.

Health levels are either measured as very good, good, fair, bad, or very bad. In this case, an ordered probit regression is used. The authors also utilized the EQ-5D continuous scale health measure. With the continuous variable, a least squares regression model is used. What are the results?

When no instruments are used FPs [family physicians] have a positive but statistically insignificant effect on health. When FP supply is instrumented by age-related capitation it has markedly larger and statistically significant effects. A 10 percent increase in FP supply increases the probability of reporting very good health by 6 percent.

Since almost all medical care and pharmaceuticals are free to patients, increased physician supply will not act to reduce prices. Nevertheless, more family physicians can make going to the doctor more convenient and can reduce waiting times, thus increasing the number of family physician visits per individual per year.

One interesting econometric technique used in this paper is that of the anti-test. A paper by Dranove and Meher (1994) criticizes the use of instrumental variables because the use of some instruments can be used to “prove” that increased physician supply “causes” increased childbirth. This is obviously a nonsensical correlation. In this paper, the authors use instrumented and noninstrumented family physician supply to see these variables have any effect on the individual’s ethnicity. Neither the instrumented or noninstrumented physician supply has any impact on ethnicity. Thus, we have some indication that the two instruments chosen by the authors are valid.