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The Consequences of Medicare Pricing: An Explanation of Treatment Choice



Primary care physicians (PCPs) provide more specialty procedures in less-urban areas, where specialists are fewer. Using a structural random-coefficient model and the demographic and time variation in the data, this paper shows that changes in policy-set reimbursements lead to a reallocation of the suddenly-more-remunerative procedures away from specialists and toward PCPs, and this effect is stronger, the more rural an area is. A reimbursement-unit increase for a given procedure leads to outside-metro PCPs gaining 7-15% market share more than metro PCPs in that procedure, at the expense of specialists. Small metropolitan areas and very rural areas are the most affected.

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  • Elena Falcettoni, 2020. "The Consequences of Medicare Pricing: An Explanation of Treatment Choice," Finance and Economics Discussion Series 2020-063, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgfe:2020-63
    DOI: 10.17016/FEDS.2020.063

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    References listed on IDEAS

    1. Ake Blomqvist & Colin Busby, 2012. "How to Pay Family Doctors: Why "Pay per Patient" is Better Than Fee for Service," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 365, October.
    2. Melichar, Lori, 2009. "The effect of reimbursement on medical decision making: Do physicians alter treatment in response to a managed care incentive?," Journal of Health Economics, Elsevier, vol. 28(4), pages 902-907, July.
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    More about this item


    Primary care physicians; Specialists; Specialty procedures; Rural; Reallocation; Medicare; Fee-for-service;
    All these keywords.

    JEL classification:

    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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