The Supply of Surgeons and the Demand for Operations

This paper presents a multi—equation multi—variate analysis of differences in the supply of surgeons and the demand for operations across geographical areas of the United States in 1963 and 1970. The results provide considerable support for the hypothesis that surgeons shift the demand for operations. Other things equal, a 10 percent increase in the surgeon/population ratio results in about a 3 percent increase in per capita utilization. Moreover, differences in supply seem to have a perverse effect on fees, raising them when the surgeon! population ratio increases. Surgeon supply is in part determined by factors unrelated to demand, especially by the attractiveness of the area as a place to live. Victor R. Fuchs National Bureau of Economic Research 204 Junipero Serra Boulevard Stanford, CA 94305 415/326—1927 THE SUPPLY OF SURGEONS AND THE DEMAND FOR OPERATIONS Victor R. Fuchs* Inequality in the distribution of physicians across the United States and the possible influence of physician supply on the demand for their services are subjects of continuing interest to economists and health policy makers. If physicians choose their locations partly for reasons unrelated to demand, and, if, given their locations, they can increase or decrease the demand for their services independently of changes in price, the implications for economic analysis and for public policy are profound. Some economists [Fuchs—Kramer 1972; Evans 1974] have reported evidence in support of the demand—shifting hypothesis, but others are skeptical [Sloan—Feldman 1977]. Many physicians believe that they have almost unlimited power to shift demand. This belief is based on introspection, clinical experience, and the correlation between supply and utilization, but skeptics offer several alternative explanations for the correlation. The principal purpose of this paper is to shed some light on this question through a multi—equation, multi—variate analysis of differences in the supply of surgeons and the demand for operations across geographical areas of the United States. In—hospital operations seem particularly well suited for analysis of demand—shifting because several of the problems that have hampered previous studies can be avoided or minimized. The following section discusses the hypothesis of demand—shifting and indicates why this study provides a good test of it. The analytical framework and data are then described, followed by *1 am grateful to Louis Garrison and Natalie Ziegler for research assistance, to Lawrence J. Lau for econometric advice, and to the participants in the NBER conference "The Economics of Physician and Patient Behavior" for helpful comments on an earlier draft.