| The United States cannot afford its healthcare system as it currently stands. Society must soon decide on how to reform Medicare, which contributes to over 47% of healthcare spending in the United States (Klees, Wolf, and Curtis 2010). Some of Medicare's excess spending stems from the overutilization of treatments. In this paper, a modified physician induced demand model is developed to better understand physician incentives. In particular, the model predicts that when the standard of care appears ambiguous, the effects of inducement are diminished, and physicians are incentivized to lead their patients to the most expensive course of treatment. The use of intensity modulated radiation therapy (IMRT) on low-grade prostate cancer patients is the perfect context in which to test this model. The results show that the probability that a patient is treated with IMRT decreases by about 85% when reimbursement is cut by 30%. |
