Quantifying Supplier Induced Demand Caused by the 2014-Health Reform Plan

The Health Reform Plan was initiated in 2014 aiming to increase health utilization and to reduce the out-of-pocket payment. The plan was criticized for its inflationary effects and also its health induced demand. This study examines the induced demand hypothesis using the health datasets of the year  2008 (before the reform) and the year 2015 (after the reform). The data is collected every four years by the National Institute of Health Research. As the control group, we consider individuals who have accessed to medical knowledge among their family members and are less exposed to the asymmetric information; thus they can be considered as the control group for whom there is no induced demand.  Individuals without medical knowledge are more likely to be exposed to induced demand by physicians, and are considered as the treatment group. We use Difference-in-Difference methodology. The robustness of results are tested using variety of subgroups and controlling for many observation. Results indicate that individuals without medical knowledge has an average of 10% more referrals compared to those who have medical knowledge. Also, their per capita cost has been increased by 54%, which is equivalent to extra 10650 tomans after the reform. Our results confirm that the reform has significantly induced demand.