5.1. Physician visits: a two-stage decision process
The number of physician visits is not perfectly continuous in that it takes a limited number of values with a bunching at zero. This creates some empirical concern with running ordinary least squares on a left censored dependent variable. In addition, patients make a decision to see a doctor for the first visit, and then it is unclear who decides the number of visits after that. A doctor might take over as the agent of the patient and decide the medical needs of that patient, despite the degree of information the patient possesses. Our hypothesis is that even the number of visits will be influenced by informed patients, but consumers are still limited in treatment choices once they see an expert. Given this attribute of the market, the important consumer choice is over whether to see a physician or not. If we care about estimating the magnitude of potential savings from substituting toward lower cost information, we do need the number of visits. So we need to model both the decisions to participate in the health care services market, and the consequential
quantity demanded in the market.