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Medical economics. --- Medical care --- Economics, Medical --- Health --- Health economics --- Hygiene --- Medicine --- Marketing. --- Economic aspects --- Marketing of Health Services --- Medical economics --- Marketing --- Medical care - Marketing

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Essay 1: Entry and Regulation - Evidence from Health Care Professions Abstract: In many countries pharmacies receive high regulated markups and are protected from competition through geographic entry restrictions. We develop an empirical entry model for pharmacies and physicians with two features: entry restrictions and strategic complementarities. We find that the entry restrictions have directly reduced the number of pharmacies by more than 50%, and also indirectly reduced the number of physicians by about 7%. A removal of the entry restrictions, combined with a reduction in the regulated markups, would generate a large shift in rents to consumers, without reducing the availability of pharmacies. The public interest motivation for the current regime therefore has no empirical support. Essay 2: Supplier Inducement in the Belgian Primary Care Market Abstract: We perform an empirical exercise to address the presence of supplier-induced demand in the Belgian primary care market, which is characterized by a fixed fee system and a high density of General Practitioners (GP). Using a unique dataset on the number of contacts of all Belgian GPs, we first investigate whether we can find evidence of demand inducement. We furthermore investigate which type of contacts GPs typically use for inducing demand: consultations or visits. Our results indicate that there is a positive effect of GP density on per capita consumption of primary care. We cannot reject that GPs are responsible for part of this effect through inducing behavior. Furthermore, GPs especially employ consultations to induce demand. Essay 3: Strategic Interaction between General Practitioners and Specialists: Implications for Gatekeeping Abstract: We propose to estimate strategic interaction effects between general practitioners (GPs) and different specialist types to evaluate the viability threat for specialists associated to the introduction of a mandatory referral scheme. That is, we show that the specialists' loss of patientele when patients can only contact them after a GP referral has important consequences for the viability of the specialist types whose entry decisions are strategic substitutes in GPs entry decisions. To estimate the strategic interaction effects, we model the entry decisions of different physician types as an equilibrium entry game of incomplete information and sequential decision making. This model permits identification of the nature of the strategic interaction effects as it does not rely on restrictive assumptions on the underlying payoff functions and allows for the strategic interaction effects to be asymmetric in sign. At the same time, the model remains computationally tractable and allows for sufficient firm heterogeneity. Our findings for the Belgian physician markets, in which there is no gatekeeping, indicate that entry decisions of dermatologists and pediatricians are strategic substitutes in the entry decisions of GPs, whereas the presence of gynecologists, ophthalmologists and throat, nose and ear-specialists has a positive impact on GP payoffs of entry. Our results thus indicate that transition costs are likely upon the implementation of gatekeeping and that these costs are mainly associated to the viability of dermatologists and pediatricians. In this dissertation, we evaluate the economic consequences of different regulations with respect to health professionals, i.e. general practitioners (GPs), specialists and pharmacies in Belgium. That is, the organization of the care system determines the economic environment in which these health professionals are active and therefore affects the incentives their behavior as an economic agent is subject to. In three individual essays, we study the behavior of Belgian health providers given the economic environment in which they operate. The conclusions of each of the essays have their relevance in the discussion on cost containment and the optimality of health policies related to health professionals, which are part of the international debate. Policy research In many countries, there is intense debate as to whether entry in medical professions should be regulated or left to market forces. That is, on top of licensing procedures to ensure sufficient quality, some countries have additional barriers to entry into specific medical professions. The European Commission has recently taken an interest in this form of professional regulation and published a report describing the state of professional regulation across European countries (Paterson et al 2003). This report has launched debate in policy and academic circles on the desirability of entry regulation in, amongst others, health care markets. The first two essays of this dissertation contribute to this debate by investigating the behavior of health professionals in Belgium. Each of the essays evaluates a specific argument that is used in the policy debate either in favor or against the presence of entry regulation for health professionals. In the first essay we study firm behavior given the presence of a population-based maximum on the number of entrants and high fixed margins in the Belgian pharmacy market. In this context, we draw conclusions on the validity of the public interest motivation used to sustain this regulation. That is, we evaluate whether the combination of high margins and entry restrictions as in the current regulation for pharmacies is necessary to obtain sufficient geographic coverage of pharmacy services without excessive entry. Our policy simulations show that a combination of entry deregulation and drops in margins in the pharmacy market can generate a similar entry pattern as currently is the case. The policy implications of this essay are clear. The public interest view motivates the current regulation of high margins and entry restrictions as a way to ensure availability in rural areas without excessive entry elsewhere. However, as we are able to generate a comparable provision of pharmacy and physician services under less stringent policies, we find no support for this view. On the contrary, we find that substantial savings can be reached through deregulation, while this not necessarily reduces the availability of pharmacy (and physician) services across the country. To the extent that there are no other valid arguments for the existence of the Establishment Act, our findings favor a reduction in the entry restrictions in the Belgian pharmacy market. For the Belgian pharmacy market, we thus conclude that the current entry regulation on top of licensing is not welfare enhancing. Our essay furthermore provides a tool for policy makers to test whether the existence of entry restrictions based on population criteria in other countries or for other professional services is in the interest of the public or rather in the interest of the incumbents in the industry. This is important in the debate on the liberalization of professional services, as it sheds objective light on the desirability of competition reducing entry requirements. The second essay looks at the Belgian GP market in which there are no entry restrictions, next to licensing. As there are thus no bounds on the degree of GP competition in a local market, we study whether the remuneration system in Belgium triggers supplier-induced demand in the primary care market. That is, we study whether GPs artificially increase the demand for their services (and thus their income level) when they face a high degree of competition. The empirical analysis of the Belgian primary care market shows a positive relation between GP density and the number of contacts per capita. Our results can furthermore not reject that Belgian GPs are partly responsible for this finding by inducing demand for their services. If they induce demand, we find that GPs have a preference to induce through consultations, despite the higher fee for visits. In the margin of the analysis, we furthermore find some indication that GPs in markets with a low GP density use their discretionary influence over the demand to reduce the number of contacts (visits). When GPs induce demand for their services, a higher GP density level in the market is associated to higher GP care consumption and thus higher health expenditures. This extra care is furthermore not needed: patients contact GPs more often than they would in case they were fully informed. In an era of ever-increasing health care budgets, policy measures to limit the GP density on local market level can therefore be optimal. That is, a lower GP density reduces the incentives for GPs to induce demand. Total health consumption will therefore decrease, in principle without an accompanying drop in the health status. This strategy is already followed in Belgium by the installment of a limitation to the number of incoming students in medicine and the Impulseo I-plan by the Flemish government to give financial incentives to GPs to locate in areas with a low GP density. Another highly debated aspect of the organization of health provision concerns the access of patients to secondary care. About half of Western-European countries operate under a system of free access to all care, whereas the other half has a system of gatekeeping (Boerma 2003). In a gatekeeping system, access to specialists is limited by the requirement of a GP referral (=mandatory referral scheme). This enforces both the role of the GP as primary care provider and care coordinator and the rationalization of the use of more expensive secondary care. The literature on the optimality of mandatory referral schemes is extensive and covers many different aspects. Instead of evaluating the desirability of a gatekeeping system, the third essay of this dissertation starts from the observation that some of the Western-European countries where health provision is based on free access are now starting to implement elements of gatekeeping. We therefore evaluate the validity of the fear for viability issues for the current body of specialists in case a mandatory referral scheme would be introduced. More precisely, the third essay evaluates which types of specialists are most likely to be threatened in their viability in case the Belgian care system changes from a system based on free choice to a system with a gatekeeping role for GPs. Our results indicate that specialist types benefit from the presence of GPs in the market. On the other hand, the effect of specialists on GP payoffs depends on the specialization field. Dermatologists and pediatricians have a negative impact on GP payoffs, while the entry decisions of gynecologists, ophthalmologists and throat, nose and ear-specialists (TNE) are strategic complements to the entry decision of GPs. No significant effect is found for psychiatrists and physiologists. Our findings therefore indicate that dermatologists and pediatricians attract a lot of patients for whom GP care would suffice, while the patientele of gynecologists, ophthalmologists and TNE-specialists either get referred or correctly self-refer to these specialist types. Given our results, we expect considerable transition costs to realize when gatekeeping would be introduced in the Belgian care system. Especially dermatologists and pediatricians are likely to experience a fall in the demand for their services, which can result in viability problems. It is up to the policy makers to decide whether or not to maintain the entire body of specialists through financial mechanisms or to retrain a portion of them. Methodology The approach we take to study issues of regulation in the health care sector mainly stems from the field of New Empirical Industrial Organization. As data availability for health care markets is often limited due to privacy concerns, we make inference on firm behavior by studying firms' decisions to operate in a local market. This allows us to understand the determinants of market structure, such as the impact of market characteristics and the strategic interactions between firms. The methodology is based on the empirical literature of entry models which originated with the work of Bresnahan and Reiss (1990, 1991) and Berry (1992). The use of equilibrium models of entry to study health care markets is relatively new and situates itself primarily in hospital markets (Abraham et al 2007). The specific regulation in the markets of health professionals however yields interesting extensions to the entry literature. Next to methodological contributions to this fast-growing literature, we contribute by expanding the application field of equilibrium models of entry. Whereas entry models have been primarily used to study the extent of product differentiation in a free entry context, our research questions instead focus on the impact of regulation. We demonstrate that equilibrium models of entry, next to e.g. demand estimations and merger simulation, are useful tools to increase the understanding of the working of specific markets and to achieve better regulation. In the first essay, we study the Belgian pharmacy and GP markets. To estimate their drivers of profitability and the effect of competitors and other-type firms on payoffs of entry, we model their entry decisions as a sequential game of complete information. The model builds on the model by Mazzeo (2002) but differs from the literature in two main respects. First, entry in the pharmacy market is not free, but restricted based on population criteria. We show in the essay that the equilibrium conditions of the free entry model (i.e. firms enter as long it is profitable to enter) can be adjusted to take up the maximum number of pharmacies that is allowed to be present in the market. Second, whereas the bulk of the literature studies product differentiation, we analyze a situation in which the entry decisions of the different types are strategic complements. That is, the model assumes that firm payoffs are increasing in the number of firms of the other type (the assumption of their entry decisions being strategic substitutes is rejected in the estimation results). These adjustments to the equilibrium conditions of the game do not only allow us to better describe the reality, but also permit to simulate the effect on the realized market structures upon changes to the entry (and price) regulation. The essay is therefore furthermore unique in the static entry literature as it is able to draw direct policy implications on the existence and the specifics of the establishment act for pharmacies in Belgium. That is, our structural model set-up allows performing policy simulations on what the equilibrium market structure would look like under alterations of the law. The third essay aims to identify the nature of the strategic interactions between GPs and specialist types, which requires the empirical model to account for three specific features. First, we do not know a priori how the strategic interactions between the types are characterized: GP payoffs can both be increasing or decreasing in the presence of different specialist types. Second, we can not exclude the possibility that the strategic interaction effects between GPs and a specific specialist type are asymmetric in sign. That is, the entry decision of a GP can be a strategic complement to the entry decision of the specialist, while the latter is a strategic substitute to the entry decision of the GP. And third, there are many different types of specialists, so that the model has to allow for a high degree of product heterogeneity. We contribute to the literature by putting forward a static entry game that copes with all three of these features: we present an incomplete information entry game with sequential entry decisions to model the entry decisions by the different physician types. We argue in the essay that modeling and estimating firm conduct should allow for realistic and flexible strategic interactions between types of firms. This however involves abandoning either the pure strategy assumption or the assumption of complete information. In sum , this dissertation develops advances in the structural modeling of firm behavior, while the applications focus on policy relevant issues in the organization of health care systems. The essays therefore carefully balance between Industrial Organization and Health Economics and try to formulate clear policy implications of the findi