Conferences at Department of Economics, University of Toronto, RCEF 2012: Cities, Open Economies, and Public Policy

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Is There a Roemer’s Law for Physicians? Physician Numbers As a Driver of Provincial Government Health Spending

Livio Di Matteo

Last modified: 2012-05-11

Abstract


The role of physicians as a cost driver for the public health care system is an important policy issue.  According to Roemer’s Law, generally expressed as “A built bed is a filled bed”, there is a direct correlation between health system capacity and utilization and by extension expenditures.  While Roemer’s Law was applied to hospital expenditures, it can by extension also be applied to physician expenditures. Indeed, one of the arguments used to restrict medical school admissions in Canada in the early 1990s was that physicians were a primary cost driver in the health system because of their role as gatekeepers.  Reduce the number of physicians and replace them with nurse practitioner teams and it was felt that cost savings would automatically ensure. 

This paper examines the role of physician supply as a cost driver in provincial government health expenditures by using annual province level data to estimate a regression model of health expenditure determinants with physician supply as a key variables while controlling for demographics, income, inflation and technological change.  More importantly, separate regression models are run by health expenditure category to examine the differential effect of physician numbers across health expenditure categories. While physician spending is an important cost driver, the drivers of public health care spending are also a complex interaction between physician decision-making, diagnostic and drug technologies, population growth and aging, and the cost and deployment of other health human resources used in treatment.   The results pinpoint exactly where physician numbers have had their greatest impact on the provincial government system of health expenditures.


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