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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
Date of revision:
Publication status: published as Ho, Kate, and Ariel Pakes. 2014. "Hospital Choices, Hospital Prices, and Financial Incentives to Physicians." American Economic Review, 104(12): 3841-84.
Handle: RePEc:nbr:nberwo:19333
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