Hospital Choices, Hospital Prices and Financial Incentives to Physicians

Kate Ho, Ariel Pakes

NBER Working Paper No. 19333
Issued in August 2013, Revised in March 2014
NBER Program(s):Health Care, Industrial Organization

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.

Acknowledgments

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Document Object Identifier (DOI): 10.3386/w19333

Published:

• Ho, Kate, and Ariel Pakes. 2014. "Hospital Choices, Hospital Prices, and Financial Incentives to Physicians." American Economic Review, 104(12): 3841-84. citation courtesy of
• Hospital Choices, Hospital Prices and Financial Incentives to Physicians, Kate Ho, Ariel Pakes. in Hospital Organization and Productivity, Chandra, Cutler, Huckman, and Martinez. 2014
• Kate Ho & Ariel Pakes, 2014. "Hospital Choices, Hospital Prices, and Financial Incentives to Physicians," American Economic Review, American Economic Association, vol. 104(12), pages 3841-84, December. citation courtesy of