An Analysis of the Supplier-Induced Demand in the Hospital sector : Switching Regime Estimates for Belgium

This paper attempts to provide some new evidence of the so called 'supplier-induced demand effect' in the hospital sector. By means of an endogenous regime switching model, the maximum likelihood estimates for Belgium are consistent with the idea that hospitals in excess-capacity actually increase the average length of stay of their patients, above what should have been if one considers only the 'patients' case-mix' of the hospitals. The model also includes the possibility of spatial spillovers which should appear as a consequence of this disequilibrium regimes. Those spillovers not only provide a better explanation of the patients dispersion among hospitals. They also decrease the 'supplier-induced demand' effect generated by hospitals by reducing the original extent of the excess-supplied situation. The model seems robust with regard to some consistency tests we have carried out. ; e.g., it is shown that hospital sectors in predominant excess-demand (resp., excess-supply) are generally those where the net emigration balance is positive, (resp., negative).