The changing pattern of disease, information asymmetry, and the effect on the physician-services market

Date of Completion

January 2001


Economics, General




This inquiry looks at the role of the change in the pattern of disease—from acute infectious to chronic—in the economic performance of the physician-services market in recent decades. The central thesis is that the change in the pattern of disease has reduced the gap in medical knowledge between physicians and patients, and has thus altered demand for what physicians of internal medicine essentially supply, that is, medical knowledge. ^ This thesis is explored both theoretically and empirically. Theoretically, this inquiry looks at the effect of patient knowledge on economic behavior and outcomes in the context of a representative-agent model of the physician/patient relationship. Specifically, the model looks at how an increase in both patient knowledge and fee-for-service insurance coverage affect the price of an office visit and the quality of care during a visit, as measured by the level of physician effort. The empirical portion of this inquiry consists of a two-stage regression model to test the central thesis, as well as examine the effect of patient knowledge and insurance coverage on the quality of physician services, measured by the amount of time physicians spend with patients during office visits. ^ This analysis tends to support the hypothesis that the change in the pattern of disease has reduced the gap in medical knowledge between physicians and patients. Moreover, the analysis offers insight on the alleged cost and quality crisis in the American health-care system, indicating that counteracting forces from a reduced knowledge gap and increasing fee-for-service insurance coverage have possibly led to a type of medical care that is higher in price and lower in quality. This analysis proposes, therefore, to view recent changes in the health-care system as, in part, a response to a fundamental change in the relationship between physicians and patients. ^