The impact of direct and extra billing for medical services: evidence from a natural experiment in British Columbia

This paper examines the impact of direct and extra billing on patient demand for medical services as well as physicians' responses to changing patient demand. These issues are examined in the context of a "natural experiment" in British Columbia, Canada where, in 1992, 81 general practitioners and specialists "opted-out" of the provincial Medical Services Plan (MSP) and began direct and extra billing their patients. These opted-out physicians are compared to a matched sample of physicians who remained within the MSP. Switching costs for patients were relatively low because of the availability of non-direct/extra billing physicians. The data consists of the more than 140,000 patient visit claims over a 2-year time period, one year immediately prior to the opting-out date and one year immediately following. The results of this study show that, on average, female visits to opted-out general practitioners (GPs) dropped approx. 9% after direct/extra billing. There was no concurrent drop for male patient visits. On average, patient visits to opted-out specialists dropped approx. 6%. Within the observed timeframe, opted-out physicians' billing patterns changed; somewhat offsetting this demand decrease. On average, opted-out GPs' payments per remaining patient increased by 10% following direct/extra billing (the post period), while opted-out specialists' payments per patient increased by 7%. There were no corresponding changes in payments per patient for the control group of physicians who remained opted-in.