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Hospital Choices, Hospital Prices and Financial Incentives to Physicians

  • Kate Ho
  • Ariel Pakes

We estimate an insurer-specific preference function which rationalizes hospital referrals for privately-insured births in California. The function is additively separable in: a hospital price paid by the insurer, the distance traveled, and plan and severity-specific hospital fixed effects (capturing hospital quality). We use an inequality estimator that allows for errors in price and detailed hospital-severity interactions and obtain markedly different results than those from a logit. The estimates indicate that insurers with more capitated physicians are more responsive to price. Capitated plans send patients further to utilize similar-quality lower-priced hospitals; but the cost-quality trade-off does not vary with capitation rates.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19333.

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Date of creation: Aug 2013
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Publication status: forthcoming in the American Economic Review.
Handle: RePEc:nbr:nberwo:19333
Note: HC IO
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  1. Martin Gaynor & William Vogt, 2002. "Competition Among Hospitals," GSIA Working Papers 2003-E20, Carnegie Mellon University, Tepper School of Business.
  2. Card, David & Krueger, Alan B, 1994. "Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania," American Economic Review, American Economic Association, vol. 84(4), pages 772-93, September.
  3. Katherine Ho, 2005. "The Welfare Effects of Restricted Hospital Choice in the US Medical Care Market," NBER Working Papers 11819, National Bureau of Economic Research, Inc.
  4. A. Pakes, 2010. "Alternative Models for Moment Inequalities," Econometrica, Econometric Society, vol. 78(6), pages 1783-1822, November.
  5. McClellan, Mark & Cutler, David & Newhous, Joseph P., 2000. "How Does Managed Care Do It?," Scholarly Articles 2643884, Harvard University Department of Economics.
  6. Daniel P. Kessler & Mark B. McClellan, 2000. "Is Hospital Competition Socially Wasteful?," The Quarterly Journal of Economics, MIT Press, vol. 115(2), pages 577-615, May.
  7. Dana Goldman & John A. Romley, 2008. "Hospitals As Hotels: The Role of Patient Amenities in Hospital Demand," NBER Working Papers 14619, National Bureau of Economic Research, Inc.
  8. Mark McClellan, 2011. "Reforming Payments to Healthcare Providers: The Key to Slowing Healthcare Cost Growth While Improving Quality?," Journal of Economic Perspectives, American Economic Association, vol. 25(2), pages 69-92, Spring.
  9. Capps, Cory & Dranove, David & Satterthwaite, Mark, 2003. " Competition and Market Power in Option Demand Markets," RAND Journal of Economics, The RAND Corporation, vol. 34(4), pages 737-63, Winter.
  10. Mark G. Duggan, 2000. "Hospital Ownership And Public Medical Spending," The Quarterly Journal of Economics, MIT Press, vol. 115(4), pages 1343-1373, November.
  11. Ho, Katherine & Pakes, Ariel, 2011. "Do physician incentives affect hospital choice? A progress report," International Journal of Industrial Organization, Elsevier, vol. 29(3), pages 317-322, May.
  12. Martin Gaynor & James B. Rebitzer & Lowell J. Taylor, 2004. "Physician Incentives in Health Maintenance Organizations," Journal of Political Economy, University of Chicago Press, vol. 112(4), pages 915-931, August.
  13. David M. Cutler & Mark McClellan & Joseph P. Newhouse, 2000. "How Does Managed Care Do It?," RAND Journal of Economics, The RAND Corporation, vol. 31(3), pages 526-548, Autumn.
  14. Burns, Lawton R. & Wholey, Douglas R., 1992. "The impact of physician characteristics in conditional choice models for hospital care," Journal of Health Economics, Elsevier, vol. 11(1), pages 43-62, May.
  15. Ariel Pakes & J. Porter & Kate Ho & Joy Ishii, 2007. "Moment inequalities and their application," CeMMAP working papers CWP16/07, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  16. Patrick Bajari & Han Hong & Minjung Park & Robert Town, 2011. "Regression Discontinuity Designs with an Endogenous Forcing Variable and an Application to Contracting in Health Care," NBER Working Papers 17643, National Bureau of Economic Research, Inc.
  17. Alan T. Sorensen, 2003. "Insurer-hospital bargaining: negotiated discounts in post-deregulation connecticut," Journal of Industrial Economics, Wiley Blackwell, vol. 51(4), pages 469-490, December.
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