Money Matters

In 1997, Medicare consolidated the geographic regions across which it adjusts payments for physician services, generating area-specific price shocks that are plausibly exogenous with respect to health care demand. Areas with higher payment shocks experience significant increases in health care supply. On average, a 2 percent increase in payment rates leads to a 5 percent increase in care provision per patient. Elective procedures such as cataract surgery respond twice as strongly as less discretionary services like dialysis. Higher reimbursements also increase the pace of technology diffusion, as non-radiologists acquire magnetic resonance imaging scanners more readily when prices increase. The magnitudes of our empirical findings imply that changing provider incentives explain up to one third of recent growth in spending on physician services. The incremental care has no significant impacts on mortality, hospitalizations, or heart attacks.

This is from a new paper by Joshua D. Gottlieb at Harvard University. HT: Tyler.

Comments (4)

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  1. Linda Gorman says:

    “The incremental care has no significant impacts on mortality, hospitalizations, or heart attacks.”

    These are really strange measures. Does the extra spending affect morbidity? How about disability, extent of recovery, time spent getting care, or rate of recovery?

    Heaven forbid that we should have better access to MRIs…

  2. Devon Herrick says:

    Incentives matter: the more lucrative a procedures is; the more likely a physician is willing to provide it.

  3. Bruce says:

    Of course money matters. Who would think otherwise?

  4. Mike Ainslie says:

    John,
    It seems that they are comparing apples to oranges, as cataract surgery, MRI’s etc probably will not effect rates of mortality, hospitalizations, etc. I think they discovered that physicians, like everyone respond to financial incentives – who knew?