How Public Policies Shape the Organizational Choices of Health Care Providers

Paper Session

Saturday, Jan. 7, 2017 8:00 AM – 10:00 AM

Hyatt Regency Chicago, Regency C
Hosted By: American Economic Association
  • Chair: Joshua D. Gottlieb, University of British Columbia

Provider Incentives and Health Care Costs: Evidence From Long-Term Care Hospitals

Liran Einav
Stanford University
Amy Finkelstein
Massachusetts Institute of Technology
Neale Mahoney
University of Chicago


We study the design of provider incentives in the post-acute care setting -- a high-stakes but under-studied segment of the healthcare system. We focus on long-term care hospitals (LTCHs) and the large (approximately $13,000) jump in Medicare payments they receive when a patient’s stay reaches a threshold number of days. The descriptive evidence indicates that discharges increase substantially after the threshold, and that the marginal patient discharged after the threshold is in relatively better health. Despite the large financial incentives and behavioral response in a high mortality population, we are unable to detect any compelling evidence of an impact on patient mortality. To assess provider behavior under counterfactual payment schedules, we estimate a simple dynamic discrete choice model of LTCH discharge decisions. When we conservatively limit ourselves to alternative contracts that hold the LTCH harmless, we find that an alternative contract can generate Medicare savings of about $2,100 per admission, or about 5% of total payments. More aggressive payment reforms can generate substantially greater savings, but the accompanying reduction in LTCH profits has potential out-of-sample consequences. Our results highlight how improved financial incentives may be able to reduce healthcare spending, without negative consequences for industry profits or patient health.

Income Targeting or Entrepreneurial Investments? Physicians' Short and Long Run Supply Responses

Jeffrey Clemens
University of California-San Diego
Joshua D. Gottlieb
University of British Columbia


When physicians are also entrepreneurs, they take many decisions beyond just choosing their own labor supply. We investigate how these additional margins can shape the short-run responses of physicians' practices to reimbursement rate changes. We use a significant decline in Medicare reimbursements to surgeons relative to other physicians to examine whether fee cuts alter career investments. We find that surgeons increase patient care hours when their fees are cut. But this increase is entirely offset by a reduction in time devoted to other medical activities including continuing education. Surgeons also become less likely to take new patients, suggesting an intention to reduce the scope of their practices in the future. Short-run changes in service supply, which appear consistent with "target income" models, may generate misleading predictions about long-run access to care.

The Role of Experience in Physician Treatment Decisions: Evidence From the Introduction of Medicare Part D

Michael Dickstein
New York University
Marissa King
Yale University
Tanja Saxell
VATT Institute for Economic Research


Health care spending and utilization in the United States varies substantially across regions (Fisher et al. (2003), Skinner (2011)). We examine one possible driver of this variation at the physician level: differences in physicians’ pace of adoption of new treatments and de-adoption of outmoded treatments. Using the setting of antipsychotic treatment choice, we exploit two sources of exogenous shocks to physicians’ information in this market. First, physicians received new information over time. In the mid 2000s, the FDA announced the approval of antipsychotics for several new patient populations while also warning against the use of several existing treatments for older patients. Second, with the expansion of Medicare Part D in 2006, physicians experienced sharp changes in their patient populations, in terms of both patients’ age and insurance status. Examining the time periods surrounding these shocks, we find the speed of adoption of the latest information crucially depends on a physician’s recent experience with her patients. Thus, variation in patient demographics and insurance status by region may translate into distinct physician practice styles and distinct patterns of utilization.
Mark Shepard
Harvard University
Adam Hale Shapiro
Federal Reserve Bank of San Francisco
Daniel Sacks
Indiana University
JEL Classifications
  • I1 - Health
  • L2 - Firm Objectives, Organization, and Behavior