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Payer Type and the Returns to Bypass Surgery: Evidence from Hospital Entry Behavior


  • Michael Chernew
  • Gautam Gowrisankaran
  • A. Mark Fendrick


In this paper we estimate the returns associated with the provision of coronary artery bypass graft (CABG) surgery, by payer type (Medicare, HMO, etc.). Because reliable measures of prices and treatment costs are often unobserved, we seek to infer returns from hospital entry behavior. We estimate a model of patient flows for CABG patients that provides inputs for an entry model. We find that FFS provides a high return throughout the study period. Medicare, which had been generous in the early 1980s, now provides a return that is close to zero. Medicaid appears to reimburse less than average variable costs. HMOs essentially pay at average variable costs, though the return varies inversely with competition.

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  • Michael Chernew & Gautam Gowrisankaran & A. Mark Fendrick, 2001. "Payer Type and the Returns to Bypass Surgery: Evidence from Hospital Entry Behavior," NBER Working Papers 8632, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:8632
    Note: HC

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    References listed on IDEAS

    1. Geweke, John, 1989. "Bayesian Inference in Econometric Models Using Monte Carlo Integration," Econometrica, Econometric Society, vol. 57(6), pages 1317-1339, November.
    2. David M. Cutler & Mark McClellan, 1996. "The Determinants of Technological Change in Heart Attack Treatment," NBER Working Papers 5751, National Bureau of Economic Research, Inc.
    3. Keane, Michael P, 1994. "A Computationally Practical Simulation Estimator for Panel Data," Econometrica, Econometric Society, vol. 62(1), pages 95-116, January.
    4. David Dranove & Mark Shanley & Carol Simon, 1992. "Is Hospital Competition Wasteful?," RAND Journal of Economics, The RAND Corporation, vol. 23(2), pages 247-262, Summer.
    5. Garnick, Deborah W. & Lichtenberg, Erik & Phibbs, Ciaran S. & Luft, Harold S. & Peltzman, Deborah J. & McPhee, Stephen J., 1990. "The sensitivity of conditional choice models for hospital care to estimation technique," Journal of Health Economics, Elsevier, vol. 8(4), pages 377-397, February.
    6. McFadden, Daniel, 1974. "The measurement of urban travel demand," Journal of Public Economics, Elsevier, vol. 3(4), pages 303-328, November.
    7. Hajivassiliou, Vassilis & McFadden, Daniel & Ruud, Paul, 1996. "Simulation of multivariate normal rectangle probabilities and their derivatives theoretical and computational results," Journal of Econometrics, Elsevier, vol. 72(1-2), pages 85-134.
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    More about this item

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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