Medical fee reforms, changes in medical supply densities, and supplier-induced demand: Empirical evidence from Japan

This study empirically investigates whether several negative income shocks to medical suppliers lead them to provide patients with unnecessary and/or excessive treatments. We use a variable that is objectively assessed as representing inducement: the amount of fraudulent and/or incorrect claims detected during the bill inspection processes. The empirical results indicate that medical suppliers increase inducement by 7.5 percent in response to a 1 percent medical fee reduction, but that changes in medical supply densities do not affect it. We also find that medical suppliers in more competitive areas are more sensitive to medical fee reductions and that suppliers in low-density areas tend to provide inducements in response to patient shortages.