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HEALTH ECONOMICS Health Econ.10:457-471(2001) DOl:10.1002/hec.631 ECONOMETRICS AND HEALTH ECONOMICS EFFECTS OF COST SHARING ON PHYSICIAN UTILIZATION UNDER FAVOURABLE CONDITIONS FOR SUPPLIER-INDUCED DEMAND ARINE VAN DE VOORDE& EDDY VAN DOORSLAERB, AND ERIK SCHOKKaerta Department of Economics, University of Leuven, belgium b Department of Health Policy and Management, Erasmus University Rotterdam, Netherlands SUMMARY The effects of cost sharing on the demand for ambulatory care in experimental circumstances are well understood since the Rand Health Insurance Experiment(HIE). However, in a non-experimental real-world context supplier-induced demand of doctors might erode some of the significant negative out-of-pocket price elasticity identified in the HIE. Belgium is an interesting test case for this hypothesis because it has relatively high rates of tient cost sharing in its public health insurance system and a very high density of physicians, all remunerated fee-for-service. We have exploited the price variation generated by a substantial increase in patient co-payment ates in 1994 to estimate out-of-pocket price elasticities for three groups of users, and for three types of services sing a fixed-effects model in levels and in differences. We obtain significant out-of-pocket price elasticities for the general population in the range from -0.39 to -0.28 for GP home visits, -0.16 to -0 12 for GP offi and -0.10 for specialist visits. The estimates were generally lower and less significant for the groups of elderly and disabled. The differences we find in price responsiveness appear to be fairly robust and consistent with the hie predictions. These results suggest that -at least in the short run -non-experimental utilization effects of cost sharing are very similar to the experimental evidence, even in a situation of favourable conditions for supplier induced demand. Copyright c 2001 John Wiley Sons, Ltd KEY WORDS-Belgium; cost sharing; demand; price elasticity; supplier-induced demand INTRODUCTION Rand Health Insurance Experiment(HIE),some doubts remain regarding its external validity in The appropriate role for patient cost sharing in non-experimental real-world conditions []. The health care finance in general, and in public aim of this paper is to provide empirical evidence health insurance in particular, is not a new issue, on the effects of co-payments on the demand for and has been the subject of both extensive theo- physician services. We do so by drawing on the retical and empirical analysis and of intense policy Belgian experience in the period 1986-1995. Bel- debate for decades. Although authoritative evi- gium is an interesting country in this respect dence on the effects of patient cost sharing in because it has been making extensive use of pa experimental conditions is available since the tient out-of-pocket payments for a long time, and Correspondence to: Department of Health Policy and Management, Erasmus University Rotterdam, PO Box 1738, 3000 DR Rotterdam, Netherlands. Tel: +31 10 4088555: fax: +31 10 4089094: e-mail: vandoorslaer(@ bmg. eur. nl Received 16 October 2000 Copyright o 2001 John Wiley Sons, Ltd Accepted 8 May 2001HEALTH ECONOMICS Health Econ. 10: 457–471 (2001) DOI: 10.1002/hec.631 ECONOMETRICS AND HEALTH ECONOMICS EFFECTS OF COST SHARING ON PHYSICIAN UTILIZATION UNDER FAVOURABLE CONDITIONS FOR SUPPLIER-INDUCED DEMAND CARINE VAN DE VOORDEa , EDDY VAN DOORSLAERb,* AND ERIK SCHOKKAERTa a Department of Economics, Uniersity of Leuen, Belgium b Department of Health Policy and Management, Erasmus Uniersity Rotterdam, Netherlands SUMMARY The effects of cost sharing on the demand for ambulatory care in experimental circumstances are well understood since the Rand Health Insurance Experiment (HIE). However, in a non-experimental real-world context, supplier-induced demand of doctors might erode some of the significant negative out-of-pocket price elasticity identified in the HIE. Belgium is an interesting test case for this hypothesis because it has relatively high rates of patient cost sharing in its public health insurance system and a very high density of physicians, all remunerated fee-for-service. We have exploited the price variation generated by a substantial increase in patient co-payment rates in 1994 to estimate out-of-pocket price elasticities for three groups of users, and for three types of services using a fixed-effects model in levels and in differences. We obtain significant out-of-pocket price elasticities for the general population in the range from −0.39 to −0.28 for GP home visits, −0.16 to −0.12 for GP office visits and −0.10 for specialist visits. The estimates were generally lower and less significant for the groups of elderly and disabled. The differences we find in price responsiveness appear to be fairly robust and consistent with the HIE predictions. These results suggest that—at least in the short run—non-experimental utilization effects of cost sharing are very similar to the experimental evidence, even in a situation of favourable conditions for supplierinduced demand. Copyright © 2001 John Wiley & Sons, Ltd. KEY WORDS — Belgium; cost sharing; demand; price elasticity; supplier-induced demand INTRODUCTION The appropriate role for patient cost sharing in health care finance in general, and in public health insurance in particular, is not a new issue, and has been the subject of both extensive theoretical and empirical analysis and of intense policy debate for decades. Although authoritative evidence on the effects of patient cost sharing in experimental conditions is available since the Rand Health Insurance Experiment (HIE), some doubts remain regarding its external validity in non-experimental real-world conditions [1]. The aim of this paper is to provide empirical evidence on the effects of co-payments on the demand for physician services. We do so by drawing on the Belgian experience in the period 1986–1995. Belgium is an interesting country in this respect, because it has been making extensive use of patient out-of-pocket payments for a long time, and * Correspondence to: Department of Health Policy and Management, Erasmus University Rotterdam, PO Box 1738, 3000 DR Rotterdam, Netherlands. Tel.: +31 10 4088555; fax: +31 10 4089094; e-mail: vandoorslaer@bmg.eur.nl Copyright © 2001 John Wiley & Sons, Ltd. Receied 16 October 2000 Accepted 8 May 2001