Does knowing the costs of other physicians affect doctors’ referrals?

Patient referrals from primary care physicians (PCPs) to specialists are common in the American health care industry, but are typically made without any knowledge of relative specialist costs. In this study, I estimate the effect of providing such information to PCPs on referral patterns. Implementing a field experiment with an Independent Practice Association (IPA), I sent a list of average costs for new ophthalmology referrals to randomly chosen primary care medical practices. Using administrative referral data, I find that PCPs increased referral share to less costly ophthalmology practices during the first two months after treatment by 4.6 percentage points for each reduction in costliness rank (e.g., each rank closer to the least expensive). Effects were only found for patients for whom the PCPs had cost reduction incentives, and dissipated over the following four months. For the patients whose referrals were affected, I estimate that the expected cost to the IPA of a referral to ophthalmology fell during the first two months by about $80 (45% of pre-intervention referral cost).