Market Competition and Supplier-Induced Demands:

<p>Sustainable medical expense has attracted public attention in rapidly aging societies. In fact, with a limited budget, the government of Japan has responded to increasing medical needs by lowering medical treatment fees and tightening regulations on hospital bed utilization. However, with information asymmetry between patients and medical professionals, "supplier-induced demands" -the phenomenon of increased medical service consumption caused by increased market competition -, has the potential to cancel the government's efforts. Supplier-induced demands can be seen when the number of medical institutions per capita is large (i.e., the market is competitive). Using Japanese data, this paper investigates whether or not the number of medical institutions per capita affects regional medical expense. Several researchers have investigated the phenomena by analyzing only macro and receipt data from Japan, without considering the details of patients' backgrounds. The current research addresses the absence of studies that include patient attributes. The study used detailed data, such as age, gender, health awareness, and annual income from Osaka University's Preference Parameter Study in Japan, as control variables to analyze the correlation between the number of medical institutions per capita and regional medical expense. Two-part model allowed separate investigations of consultation rates and costs per consultation. The results showed that, although market competitiveness positively affected consultation rates and negatively affected the cost per consultation, it did not significantly affect overall medical expense. The paper concludes that, even under conditions controlling detailed patient attributes, supplier-induced demands were not evident in the Japanese market.</p>