Revisiting physicians' financial incentives in Quebec: a panel system approach.

Do Primary Care Physicians (PCPs) react strategically to financial incentives and if so how? To address this question, we follow a quasi-natural experiment in Quebec, using a panel system technique. In so doing, we both correct for underestimation biases in earlier time series findings and generate new results on the issue of complementarity/substitution between consultations with varying levels of technicality. Under both techniques, we show that PCPs are sensitive to the enforcement and subsequent temporary removals of expenditure caps and more generally, to changes in consultations' relative prices over time. These results support the existence of a discretionary power over the choice of consultation, PCPs increasing strategically the number of the more technical (and therefore more lucrative) consultations when pressed to defend their income. This finding for primary care parallels the now well-established DRG creep in hospitals. The panel system approach offers a better account of the complexity surrounding PCPs' decision-making process. In particular, it successfully addresses issues of physician heterogeneity, jointness between consultations and temporal breaks and generates robust estimates of PCPs volume and quality reactions to regulatory changes. Copyright (c) 2005 John Wiley & Sons, Ltd.