Lecture 23 -11/30/99

Sloan, "Effects of Health Insurance on Physicians’ Fees"

Background

• Thought that insurers’ payment affects fees, but prior to study, virtually no empirical evidence on this
• UCR, basic insurance versus major medical, indemnity versus service benefit, Medicare assignment

Theory:Single Product Market

• p=P(y;M) where p=physician’s fee, y=physician’s output, M=exogenous (to physician) factors affecting demand for physician
• C=C(y;N) where C=total practice cost, N=exogenous factors affecting cost curve
• profit=[p(y;M)+ks]y-C(y;N)]. Physician maxs this by selecting y. FOC:MR=MC

Theory: Two Product Markets

• Price-setting market like before and price-taking market where payment is i per unit of service
• profit=ix+[ks+p(y;M)]y-C(x+y;N)
• Now two cases: in Case 1, physician only serves price-setting market. In Case 1,FOC is MRY =MC. In Case 2, physician serves both markets, and i=MRY=MC.

Graph:MD Participates in Both Markets

Graph: Physician Only Participates in Price-Setting Market

Predicted Effects of Changes in Exogenous Insurance Variables

Data

• Physicians’ Practice Cost Surveys conducted by National Opinion Research Center of U. of Chicago in 1977 & 1978
• Surveys contained questions about fees for particular procedures and how much each payer (type) paid for the procedure

Explanatory Variables

• Three alternative specifications of insurance:

1. Payer-specific fee schedules weighted by proportion of physician’s practice patients with each payer type;
2. Separate variables representing proportions of patients with private insurance (actual re sponses), Medicare (actual responses), and Medicaid (predicted values);
3. Variables for proportions of patients*fee schedule for that patient type.

Other Explanatory Variables

• Binary variables for specialty
• Physician credentials
• Physician relationship to hospital
• Product demand variables (other than insurance)
• Factor prices

Empirical Results

• Table 2 shows estimated office (FOV) and hospital visit (FHV) equations. Table 3 shows regressions for five other more specialized procedures. Estimated elasticities presented in Table 4.
• Discuss other research findings on physician participation in Medicaid (related to Medicare assignment of benefits)

Weighted Fee Schedule Results

• Weighted fee schedule coefficients are all positive and statistically significant at 5% level or higher.
• Associated fee-weighted fee schedule elasticities range from 0.24 to 0.38.
• Hard to isolate effect of Medicaid fee schedule using this approach--selection problem

Implications

• More generous payment by insurers leads to higher fees.
• From here, effect of Medicaid fee schedule indeterminate
• May be effects of insurer payment on quality-amenities (references to Sloan-Lorant and Guterman research)

Medical Malpractice

What is the specific role of medical malpractice in addressing quality?

Myths About Medical Malpractice

5 Myths

• There are too many malpractice suits.
• Only "good" doctors are sued.
• Dispute resolution in medical malpractice is a lottery.
• Medical malpractice plaintiffs are overcompensated for their losses.
• The high cost of health care: Oh those d___ malpractice suits (and greedy patients).

Data Sources

• Harvard Medical Practice Study (New York)
• Survey of Medical Malpractice Claimants--Birth-related and ER injuries
• Survey of Obstetrical Care (Florida)
• Other data: surveys of physician practices, premium data from insurers, etc.

Myth 1: There are too many malpractice suits.