In this paper we empirically examine the occurrence of Supplier Induced Demand (SID)in the Dutch hospital sector. We obtained a unique panel dataset and relate the number of patients per 4-digit ZIP-code area during the years 2006-2009 to a set of demand andsupply side variables including the physician density. We find that, ceteris paribus, an increase in the physician density leads to an increase in the number of patients for the major part of the sixteen treatments we analyze. The size of this effect is estimated to besubstantial and dependent on the remuneration method of the physician. Depending on the type of treatment, a 1% increase in the total number of physicians is estimated to increase the number of patients by 0.1%-0.7% if these extra physicians are all paid on afee-for-service basis.

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