How do doctors add to rising health care costs?
What will be an ideal response?
Doctors can add to costs because there is asymmetric information; the provider knows more than the buyer and thus there is “supplier-induced” demand. Doctors have no strong incentive to reduce costs for the buyer and perhaps an economic interest in increasing them because they are paid on a fee-for-service basis. Two other medical practices may contribute to increased costs: “defensive medicine” may be used to prevent possible lawsuits; medical ethics requires the best (and often the most expensive) procedures.
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