Reimbursement rates, Provider Incentives, and the Efficiency of Care Delivery
Payments from health insurers to medical providers play a central role in health care markets. They affect providers’ incentives to treat patients and may therefore have important consequences for health outcomes. The studies in this session shed light on this relationship by examining the effect of public and private health insurance reimbursement rates on provider incentives and health care delivery. The first paper analyzes the role of Medicare’s physician price menu as a benchmark for reimbursement rates set by private insurers. Using claims data from a large private insurer, this study investigates the extent to which insurers trade-off between reductions in transaction costs in an otherwise complex pricing environment, which they can achieve through benchmarking, and better tracking marginal costs by fine-tuning reimbursement rates. The second study investigates the effects of differences between Medicaid reimbursement rates and private rates on health care utilization in the long-term care industry. Using data on U.S. nursing home stays, this study provides evidence that nursing homes prolong the stays of their Medicaid patients when they have free capacity. This incentive is mitigated when occupancy rates are high, since nursing homes prefer to make room for more profitable private-pay patients. The third paper explains lower spending among HMOs by analyzing the effects of price differences between HMO and non-HMO plans on physicians’ prescribing patterns. Using a structural model of patient-physician interactions in the statin market, this paper is able to disentangle differences in prescribing patterns into patient selection, price differences, and differences in physician price-sensitivities.