Strategic Interaction in the Market for Physician Services: The Treadmill Effect in a Fixed Budget System

37 Pages Posted: 18 Apr 2001

See all articles by Achim Wambach

Achim Wambach

ZEW – Leibniz Centre for European Economic Research; University of Mannheim; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Franz Benstetter

Ludwig Maximilian University of Munich (LMU) - Faculty of Economics

Date Written: March 2001

Abstract

We examine the strategic interaction in the market for physician services when the total budget for reimbursement is fixed. We show that this prospective payment system involves compared to a fee-for-service remuneration system a severe coordination problem, which potentially leads to the "treadmill effect". For the institutional setting of German primary physician service we provide evidence for decreasing reimbursement per treatment, which is consistent with theoretical predictions. When market entry is possible, a budget can be efficiency enhancing, if in addition a price floor is used.

Keywords: Health Economics, Supplier-Induced Demand, Remuneration Systems, Coodination Device

JEL Classification: D21, I11, I18, L11

Suggested Citation

Wambach, Achim and Benstetter, Franz, Strategic Interaction in the Market for Physician Services: The Treadmill Effect in a Fixed Budget System (March 2001). CESifo Working Paper Series No. 427. Available at SSRN: https://ssrn.com/abstract=267079

Achim Wambach (Contact Author)

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

University of Mannheim ( email )

Universitaetsbibliothek Mannheim
Zeitschriftenabteilung
Mannheim, 68131
Germany

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Franz Benstetter

Ludwig Maximilian University of Munich (LMU) - Faculty of Economics ( email )

Ludwigstrasse 28
Munich, D-80539
Germany

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