The role of experience in physician treatment decisions: Evidence from the Introduction of Medicare Part D

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’ opportunities to learn from their own experience. More specifically, we examine whether experiential learning moderates physician responses to new external information. 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 changes in the distribution of their patients’ age and insurance status. Examining the time periods surrounding these shocks, we find slow and heterogeneous responses to new drug information. 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.