Supply curves still slope upward in health care

At least that is the finding from a study in the UK from Parkinson et al. (2019):

We investigate hospital responses to a 32% increase in price for two treatments in emergency departments in England in April 2011 using data on 11,532,304 attendances (79 hospitals) between 2009/2010 and 2013/2014. We compare changes in the volumes of these two treatments to a treatment not attracting additional reimbursement using a difference‐in‐differences framework. Additional reimbursement led to 76% and 152% increases in the volumes of the two incentivised treatments. Hospitals received an additional £64.4 M between April 2011 and March 2014 for providing these treatments, of which 40% (£25.9 M) was attributable to the unanticipated hospital response to the price increase.

The authors conduct a series of tests to find out of the change in behavior is a reporting-based change or an actual change and find evidence for the latter. Although some studies have found evidence for supplier induced demand (i.e., price reductions lead to an increase in volume), most people should still hold a Bayesian prior that supply curves slope upwards.


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