The Economics Of Medicare: Equilibrium Within The Medical Community

Date of Award


Degree Type


Degree Name

Doctor of Philosophy


Most of the existing medical economics literature is descriptive rather than analytical, summarizing the institutional methods of delivering medical care or identifying empirical regularities. The integration of theoretical advances to develop a general analysis of the medical community is slow. Medical economics lacks a theoretical model of the whole medical community. The purpose of this thesis is to fill this void.;Traditional economic models of maximizing behavior are used in this thesis to analyze equilibrium in the medical community under socialized medicine. We use the technique of equalizing differences and consider a long-run competitive equilibrium which is characterized by implicit contracts beween economic actors.;On the consumer's side we assume expected utility maximization. Consumers engage in the production of individual preventative and remedial activities, and demand medical services from health care organizations. The latter include medical units (i.e. general practitioner units) and hospitals. We show that individual and medical unit preventative activities are substitutes, while remedial activities are complements. Additional predictions are offered which account for systematic differences in consumer behavior.;Medical units are analyzed without invoking demand shifting; we assume medical units act as perfect agents for consumers by providing those services which the patient would choose had he the same knowledge and information as the physician. We consider alternative payment schemes. In particular, the fee-for-service scheme is compared to the capitation scheme. Variations in the payment scheme alter the mix of services offered to consumers. Hybrid payment schemes never exist in the competitive equilibrium; capitation units always have lower expected costs per enrollee and more enrollees than fee-for-service units; both units may co-exist in the competitive equilibrium. In addition, regional variations in physical density are predicted to be positively associated with medical services per capita while negatively associated with the propensity to hospitalize patients.;We assume the hospital is operated by hospital entrepreneurs to maximize expected profits. An externality (waiting time) exists in the market for hospital services. The implicit contract offered by hospitals to consumers internalizes this externality, thereby solving the potential market failure. . . . (Author's abstract exceeds stipulated maximum length. Discontinued here with permission of school.) UMI

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