Financial incentives and physician prescription behavior: Evidence from dispensing regulations.

In many health care markets, physicians can respond to changes in reimbursement schemes by changing the volume (volume response) and the composition of services provided (substitution response). We examine the relative importance of these two behavioral responses in the context of physician drug dispensing in Switzerland. We find that dispensing increases drug costs by 52% for general practitioners and 56% for specialists. This increase is mainly due to a volume increase. The substitution response is negative on average, but not significantly different from zero for large parts of the distribution. In addition, our results reveal substantial effect heterogeneity.