Physician-Induced Demand Hypothesis in Iran: Impact of the Physician Density on Treatment Costs

Selling unnecessary health care services to patients brings a lot of pressure to insurance companies. This study wants to investigate the effect of increasing competition among doctors which is regarded as increased induced demand, on health expenditures. This is a practical, descriptive - analytic research which is held using panel data in an eight-year period (from 2006 to 2013). After using suitable econometrics tests, we use a Driscoll - kraay test for final estimation of the model. According to the results, by increasing the physician density, health expenditures will increase at a cubic equation and in this case, the induced demand hypothesis based on the effect of the increase in physician density on health expenditure in Iran will not be rejected. According to the findings, with one percent increase in the physician density, health expenditures will increase by 0.38 percent. By taking into account the significant relationship between physician density and health care costs, as well as changing the concavity of the obtained function, it seems like decision-makers of this area, such as health insurers( as the buyers of services) must pay more attention to control these challenges in policies.