An analysis of fee-for-service medical practice in Australia : results for general practitioner markets

Connelly, Luke Brian. (2000). An analysis of fee-for-service medical practice in Australia : results for general practitioner markets PhD Thesis, School of Economics, The University of Queensland.

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Author Connelly, Luke Brian.
Thesis Title An analysis of fee-for-service medical practice in Australia : results for general practitioner markets
School, Centre or Institute School of Economics
Institution The University of Queensland
Publication date 2000
Thesis type PhD Thesis
Supervisor Dr Darrel Doessel
Total pages 530
Language eng
Subjects 1402 Applied Economics
1117 Public Health and Health Services
Formatted abstract This dissertation is primarily concerned with the operation and outcomes of markets of a private fee-for-service (FFS) kind, funded under the Australian Medicare health care financing arrangements. The thesis provides, inter alia, an economic analysis of the Medicare financing framework per se, an analysis of the impact of Medicare on the strategies of medical firms, and analyses of the outcomes of various private FFS markets for medical practitioner services. In particular, much of the empirical work contained in this thesis is conducted on general practitioner (GP) markets. The work is divided into four parts, viz. Part I "Introduction" (Chapters 1 and 2); Part n "Descriptive Analyses" (Chapters 3 to 6); Part HI "Theoretical Issues" (Chapters 7 to 9); and Part IV "Econometric Results" (Chapters 10 to 14). The chapter contents are outlined briefly, below.

Chapter 1 presents a discussion of the interrelationships of three important
health sector phenomena (viz. health status, health insurance and health care) and other relevant variables. The chapter is concerned with several tasks: first, it is concerned with presenting a clear conception of the causal links between health sector phenomena and other social, economic, demographic and environmental variables; second, it presents a discussion of the targets and instruments of government "health" policies; third, it provides an overview of the methodological approaches of economists and non-economists to the study of these health sector phenomena; and fourth, it offers a description the "place" of the remaining chapters of the thesis in the health and economics literatures.

Chapter 2 then provides an analysis of health care financing in Australia, with an emphasis on those arrangements that pertain to the private, FFS medical sector. In particular, this chapter is concerned with providing a clear exposition of the relationship between the prices received by Australian medical practitioners, the "out-of-pocket" (or net) prices paid by consumers, and the subsidy arrangements of Medicare. This chapter presents a contribution to knowledge of a positive economic kind.

Chapter 3 then presents an analysis of quarterly time-series data on the prices of GP services since the introduction of the Medicare scheme, by Australian state and territory. The technique of analysis employed in Chapter 3 involves the estimation of stochastic time series models. The primary purpose of the analysis conducted in Chapter 3 is to describe the price outcomes for GP services under Medicare over time and across space, including the effects of changes to the Medicare financing arrangements. This chapter constitutes a contribution to knowledge of a descriptive, empirical kind.

Chapter 4 is also concerned with the estimation of stochastic time-series models, however the price variables of interest in this chapter are the relative prices of
various non-GP services to GP services. Thus, Chapter 4 also presents an empirical contribution to knowledge of a descriptive kind, where the purpose is to describe the relative price outcomes that have arisen under Medicare over time, and across the states and territories of Australia.

Chapters 5 and 6 also present contributions to knowledge of a descriptive empirical kind. However, these chapters are not concerned with time-series analyses at the level of the states and territories, but rather, disaggregated cross-section analyses of the markets for GP services in the State of Queensland. The purpose of Chapter 5 is to describe inter-regional differences in the prices and quantities of GP services, as well as the number of GPs, at the sub-state level. Chapter 5 is also concerned with describing differences in GP gross incomes by region and the implications of these inter-regional differences for public policy. The focus of Chapter 6 is quite different: it is concerned with analyses of the distribution of GP services, health care expenditures, Medicare earmarked taxes ("Medicare Levies"), and so on,under the Medicare financing system. The purpose of Chapter 6 is to inform a debate on "equity" and "equality" that, in Australia, presently occurs in a data vacuum.

Chapter 7 presents a contribution to knowledge of a theoretical kind. It is primarily concerned with the impact of the Medicare financing arrangements on the strategies of profit-maximising, private FFS firms. The purpose of this chapter is to provide some insight into the behaviour of profit-maximising medical firms including observed strategies, such as those to invest in vocational registration (VR), and to adopt (or not to adopt) "bulk-billing" arrangements (whereby the medical firm accepts the Commonwealth subsidy or "Medicare Rebate" as full payment for a service, thus resulting in a zero net price for the consumer).

Chapter 8 then provides a clarification of a theoretical kind on the nature and meaning of "supply" in perfectly competitive markets and other market structures, along with a discussion of the treatment of this issue in the empirical health economics literature to date. The chapter exposes the "convenient", though (it is argued here) theoretically dubious practice, of introducing "supply" in simultaneous equations systems via an identity. Chapter 9 then presents some alternative empirical approaches to be employed in the present study.

Chapter 10 presents the estimating equations employed in this study, a discussion of a priori expected coefficient signs for the empirical work to be conducted, and some descriptive statistics for relevant data sets. Chapter 11 then provides an overview of system results and a series of econometric tests of four model specifications using two different estimation techniques, thus giving rise to eight sets of econometric results.

Chapter 12 presents a contribution to knowledge of an empirical econometric kind: it reports the results of estimating health production functions for Australia as a part of the simultaneous systems described in Chapter 10. Of interest in this chapter is the relationship between health status and various health-affecting inputs.

Chapter 13 presents the results of estimating various specifications of demand equations for GP services within the systems of equations specified in Chapter 10. Of particular interest in Chapter 13 are the money and time-price elasticities of the demand for GP services and tests of the supplier-inducement, and other relevant hypotheses. The results presented in Chapter 13 also contribute to knowledge and are of an empirical econometric kind.

Chapter 14 concludes the work with a brief recapitulation, followed by a classification of the contributions contained in the dissertation.
Keyword Medical care -- Australia -- Finance
Medicare (Australia)
Medical economics
Health insurance -- Australia -- Finance

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