Patients as Consumers - Harvard Law School

MLR 106-4 Edit Format Document Hall Mich L Rev.doc
or managed-care insurance, 90 although elsewhere doctors retain much of
their market power.
We know that doctors retain market power because they have
responded to the concessions given up in bargaining in two ways: by
“cost shifting” (raising prices for uninsured patients) and by “demand
inducement” (convincing patients to use more services). 91 But while
doctors have clearly used these devices, 92 they have not necessarily
maximized their profits—doctors “often do not set their prices as high
as the market will bear.” 93 One theory is that doctors are restrained
by a sense of professional duty. Another explanation is the “target
income” hypothesis, which supposes that physicians develop goals for
their income and use market power to achieve them. 94 Thus economists
generally see doctors as “profit-satisficers” rather than profitmaximizers.
95
While physicians have not consistently exploited their market
power, the enormous disparities between what insured and uninsured
patients pay suggest that doctors sometimes charge exploitative fees,
fees that may call for judicial intervention. In particular, the
differences between what doctors charge insured and uninsured patients
are eye-popping. For example, one study calculated that private
insurers receive a fifty-six percent discount, meaning that physicians
overall charge seventy-nine percent more than they receive from
insurers. 96 Differentials vary. 97 For basic office or hospital visits,
90. See McGuire, supra note 36, at 527 (“[T]he prices chosen by
health plans are probably best regarded as being determined by demand and
supply.”); Mark V. Pauly & Mark A. Satterthwaite, The Pricing of Primary Care
Physicians’ Services: A Test of the Role of Consumer Information, 12 Bell J.
Econ. 488, 489 (1981) (describing physicians in metropolitan areas as “price
setters”).
91. For reviews of this literature, see Feldstein, supra note 36, at
286–87; Martin Gaynor, Issues in the Industrial Organization of the Market for
Physician Services, 3 J. Econ. & Mgmt. Strategy 211 (1994); McGuire, supra
note 36, at 503–19.
92. Cf. Uwe E. Reinhardt, Commentary, 53 Med. Care Res. & Rev. 274,
285 (1996) (“[I]t has always been widely taken for granted that physicians
can recoup from private payers a substantial proportion of any income losses
they suffer as a result of cost-containment efforts . . . .”).
93. Ginsburg, supra note 15, at 477. Another prominent health
economist reached the same conclusion more than thirty years earlier.
Newhouse, supra note 37, at 182 (finding “some evidence that physicians do
not maximize short-run profits” despite their “inherently monopolistic”
power).
94. See generally, McGuire, supra note 36, at 522–26 (describing, but
rejecting, the target-income theory).
95. Masson & Wu, supra note 47.
96. Ginsburg, supra note 70.
97. A comprehensive study in the 1980s found that physicians’ fees
had more than double the markup, relative to resource costs, for invasive
procedures than for ordinary office visits, with imaging and laboratory
procedures falling in between. W.C. Hsiao et al., Results and Policy
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