Working Papers in Economics,
University of Bergen, Department of Economics

Abstract: This paper examines how changes in reimbursement fees influence the service production of laboratory tests among Norwegian primary care physicians. The data represent a panel of 2,083 physicians paid on a fee-for-service basis for the period 2001–04. We construct a variable that measures the exogenous effect of changes in reimbursement fees on physician income. We measure service production by the number of laboratory tests per consultation, the relative change in the composition of laboratory tests, and the number of tests per consultation ordered from clinical laboratories. There are three main findings. First, physicians reduce the number of laboratory tests per consultation when fees decrease. Second, physicians change the composition of laboratory tests to tests that are more expensive when fees decrease. Finally, there is a spillover effect to the specialist health care sector because physicians who experience an income loss for tests analysed at the office laboratory order more tests from clinical laboratories. The results imply that fee regulation may be a simple means of controlling government expenditure. However, it is important to note the change in composition along with the potential spillover effects to other parts of the health care sector to obtain a complete picture of the influence of fee regulation on physician behaviour

Keywords: Physician reimbursement; laboratory tests; financial incentives; income effect; substitution effect

JEL-codes: I18

38 pages, January 30, 2009

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