Competition, prices and quality in the market for physician consultations

Abstract

Prices for consultations with General Practitioners (GP's) in Australia are unregulated, and patients pay the difference between the price set by the GP and a fixed reimbursement from the national tax-funded Medicare insurance scheme. We construct a Vickrey-Salop model of GP price and quality competition and test its predictions using individual GP-level data on prices, the proportion of patients who are charged no out-of-pocket fee, average consultation length, and characteristics of the GP's, their practices and their local areas. We measure the competition to which the GP is exposed by the distance to other GP practices and allow for the endogeneity of GP location decisions with measures of area characteristics and area fixed-effects. Within areas, GP's with more distant competitors charge higher prices and a smaller proportion of their patients make no out-of-pocket payment. GP's with more distant competitors also have shorter consultations, though the effect is small and statistically insignificant.