Do Medicare Payments Influence Physicians' On-the-Job Investments?

We examine how physicians' on-the-job investments and time caring for patients respond to a policy-driven payment shock. Using a substantial decline in Medicare reimbursements for surgeons relative to other physicians we show that patient care hours respond negatively to prices, while on-the-job investments respond positively. This suggests that seemingly backward-bending labor supply can be driven by on-the-job investment dynamics, rather than income targeting. The effects are strongest among physicians whose productivity directly influences their compensation. As a result, short-run supply curves can differ from the long-run supply curves that reflect these continuing investments.