In the Shadow of a Giant: Medicare's Influence on Private Physician Payments

Jeffrey Clemens, Joshua D. Gottlieb

NBER Working Paper No. 19503
Issued in October 2013, Revised in January 2015
NBER Program(s):Economics of Aging, Health Economics, Public Economics, Health Care

We demonstrate Medicare's influence on private insurers' payments for physicians' services. Using a large administrative change in payments for surgical versus medical care, we find that private prices follow Medicare's lead. A $1 change in Medicare's fees moved private prices by $1.16. A second set of Medicare payment changes, which generated area-specific reimbursement shocks, had a similar effect on private sector prices. Medicare's influence is strongest in areas with concentrated insurers, small physician groups, and competitive physician markets. The public sector's influences on system-wide resource allocation and costs extend well beyond the share of health expenditures it finances directly.

Acknowledgments

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Document Object Identifier (DOI): 10.3386/w19503

Published: Jeffrey Clemens & Joshua D. Gottlieb, 2017. "In the Shadow of a Giant: Medicare’s Influence on Private Physician Payments," Journal of Political Economy, University of Chicago Press, vol. 125(1), pages 1-39. citation courtesy of