Can Competitive Bidding Work in Health Care? Evidence from Medicare Durable Medical Equipment. (January 2023) Reject & Resubmit, American Economic Review
As of January 1, 2021, the Centers for Medicare & Medicaid Services (CMS) required all US acute care hospitals to release the prices they negotiate with insurance plans to make price comparison across hospitals easier for consumers. We report data on compliance with this requirement for all 4484 acute care hospitals in the US as of December 2021 and explore the association between hospital characteristics and compliance.
Voluntary Regulation: Evidence from Medicare Payment Reform
Government programs are often offered on an optional basis to market participants. We explore the economics of such voluntary regulation in the context of a Medicare payment reform, in which one medical provider receives a single, predetermined payment for a sequence of related healthcare services, instead of separate service-specific payments. This “bundled payment” program was originally implemented as a 5-year randomized trial, with mandatory participation by hospitals assigned to the new payment model; however, after two years, participation was made voluntary for half of these hospitals. Using detailed claim-level data, we document that voluntary participation is more likely for hospitals that can increase revenue without changing behavior (“selection on levels”) and for hospitals that had large changes in behavior when participation was mandatory (“selection on slopes”). To assess outcomes under counterfactual regimes, we estimate a stylized model of responsiveness to and selection into the program. We find that the current voluntary regime generates inefficient transfers to hospitals, and that alternative (feasible) designs could reduce these inefficient transfers and raise welfare. Our analysis highlights key design elements to consider under voluntary regulation.
Changes in the way health insurers pay healthcare providers may not only directly affect the insurer’s patients but may also affect patients covered by other insurers. We provide evidence of such spillovers in the context of a nationwide Medicare bundled payment reform that was implemented in some areas of the country but not in others, via random assignment. We estimate that the payment reform—which targeted traditional Medicare patients—had effects of similar magnitude on the healthcare experience of nontargeted, privately insured Medicare Advantage patients. We discuss the implications of these findings for estimates of the impact of healthcare payment reforms and more generally for the design of healthcare policy.
Health Care Spending, Utilization, and Quality 8 Years into Global Payment
Do opportunities to punish non-punishers help to stabilize cooperation? Or do opportunities to punish punishers harm cooperation and its benefits by deterring first order punishment and wasting resources? We compare treatments of a decision experiment without peer punishment and with one order of punishment to ones in which subjects can be punished for punishing or for failing to punish. Our treatments with higher-order punishment achieve as much improvement in cooperation as those with only one punishment stage. We see evidence of social norms in action, but no evidence of punishing failure to punish. These results suggest that higher-order punishment is neither critical to nor a major deterrent to cooperation.
Selected Research Papers in Progress
We study how government price reforms affect innovation, market structure, and product quality within the health care sector. We exploit a Medicare payment reform that reduced expenditures on certain types of durable medical equipment (DME) by 66% while leaving other types unaffected. We find that manufacturers filed 29% fewer patents and introduced 22% fewer new models in DME types affected by the price reform relative to those that were unaffected. Additionally, patents filed after the price reform increasingly focused on ``process'' rather than ``product'' innovation, consistent with increased market demand for lower-cost products. The market structure was also affected, with 25% fewer manufacturers entering affected product markets and a 65% increase in outsourcing to foreign companies. The shift towards cost-cutting, both in patenting and supply chain restructuring, was associated with increased device repair rates among Medicare beneficiaries and reported adverse events. Firms that outsourced to foreign manufacturers experienced the highest increase in adverse events. While the Medicare price reform generated substantial savings, these gains were dampened by the adverse effects on innovation, market structure, and product quality in the long run. Our findings highlight the importance of considering dynamic impacts when designing policy reforms.