What Does Health Care Billing Cost, and Why Does It Matter?

What does it cost physicians to interact with insurers in the byzantine U.S. health insurance system? We estimate these costs using rich data on the full set of interactions between a large sample of doctors and numerous different insurers. Our estimation assumes that providers maximize expected profits net of administrative costs, and that spending more effort implies a higher probability of receiving prompt payments from the insurer. Supporting this assumption, we find that physicians’ billing efforts are more successful when dealing with higher-value patient visits. We use the model's estimates to understand what predicts physicians' billing efficiency, and whether billing costs influence the supply of care to different patients. Using identification strategies that control for practice-level unobservables and physician-level unobservables, we find that physicians are less likely to treat Medicaid patients when billing costs increase. We use these estimates to determine insurers' optimal tradeoff between reimbursement rates and billing ordeals.