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Health Care Response to Prices and Reimbursement Policies

Paper Session

Sunday, Jan. 6, 2019 8:00 AM - 10:00 AM

Atlanta Marriott Marquis, International 4
Hosted By: American Economic Association
  • Chair: Scott Barkowski, Clemson University

Physician Response to Prices of Other Physicians: Evidence from a Field Experiment

Scott Barkowski
Clemson University


I examine the importance of cost information in the physician referral process. I partner with a group of physician medical practices -- an Independent Practice Association (``the IPA'') -- to perform a field experiment testing whether providing information on the costliness of specialist physicians to primary care physicians (PCPs) alters the PCPs' referral behavior. The IPA's primary care practices were assigned randomly to treatment or control groups, and the treatment group practices were provided a list of average costs for several ophthalmologists that are affiliated with the IPA. Using data collected by the IPA, I compare differences in referral rates to the ophthalmologists of interest between the treatment and control groups. My results suggest that, during the first two months following the distribution of the cost list, the treatment group PCPs reallocated referrals towards the least expensive ophthalmology practice by 112% when the patients were the type where the costs incurred by the IPA for the referral depend on the treatment choices of the specialist. This large effect dissipated significantly, though not completely, over the following four months. For patients where specialist treatment choices have little impact on the costs the IPA incurs for referrals, I find no response to the treatment. This contrast in results suggests that PCP responses were influenced by cost reduction motives.

Industry Input in Policymaking: Evidence from Medicare

David C. Chan
Stanford University
Michael Dickstein
New York University


In setting prices for physician services, Medicare solicits input from a committee that evaluates proposals from industry. We investigate whether this arrangement leads to prices biased toward the interests of committee members. We find that increasing a measure of affiliation between the committee and proposers by one standard deviation increases prices by 10%, demonstrating a pathway for regulatory capture. We then evaluate the effect of affiliation on the quality of information used in price-setting. More affiliated proposals produce less hard information, measured as lower quality survey data. However, affiliation results in prices that are more closely followed by private insurers, suggesting that affiliation may increase the total information used in price-setting.

Administrative Pricing, Incentive Alignment, and Medical Market Supply and Competition

Elizabeth Munnich
University of Louisville
Michael R. Richards
Baylor University


A large share of US health care dollars flows through government insurance programs. Medicare, in particular, is a key payer for many firms—making its administratively set prices influential within the sector. We study a large overhaul to its fee schedule for ambulatory surgery centers (ASCs), which directly compete with hospitals and commonly include ownership stakes by physicians. ASCs ultimately experienced negative price shocks due to the Medicare policy change, which we use to investigate changes in physicians’ supply of services to the market and market competition among ambulatory procedure firms. We find output reductions when ASCs and physicians have close incentive alignment; however, our most important findings pertain to strong ASC entry deterrence following the payment reforms. Supplementary analyses demonstrate that shielding hospitals from greater ASC competition can prevent losses of 10-20% of their contested cases and weaken their incentives to shift toward more efficient care delivery.

Impeding Access or Promoting Efficiency? Effects of Rural Hospital Closure on the Cost and Quality of Care

Caitlin Carroll
Harvard University


This paper studies the effect of hospital closure on the cost and quality of health care
in rural markets. Hospital closure can be welfare improving if it reallocates patients to more effcient facilities but can also lead to treatment delay and worsened health outcomes. I find support for both sides of this debate. Using a difference-in-differences analysis of Medicare claims, I show that rural hospital closure led to both a decrease in Medicare spending and an increase in mortality among enrollees with time-sensitive health conditions. I study implications of forestalling hospital closure in the context of the Critical Access Hospital (CAH) program, a large-scale payment reform that increased Medicare revenues for nearly half of all rural hospitals. I show that the CAH
program led to a reduction in hospital closures and an improvement in mortality, but the program's expenditures were substantial relative to these effects.
Seth Richards-Shubik
Lehigh University
Michael Darden
Johns Hopkins University
Haizhen Lin
Indiana University
Christopher Whaley
RAND Corporation
JEL Classifications
  • I1 - Health
  • H4 - Publicly Provided Goods