TY  - JOUR
AU  - Clemens, Jeffrey
AU  - Gottlieb, Joshua D
AU  - Molnár, Tímea Laura
TI  - The Anatomy of Physician Payments: Contracting Subject to Complexity
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 21642
PY  - 2015
Y2  - October 2015
DO  - 10.3386/w21642
UR  - http://www.nber.org/papers/w21642
L1  - http://www.nber.org/papers/w21642.pdf
N1  - Author contact info:
Jeffrey Clemens
Department of Economics
University of California, San Diego
9500 Gilman Drive #0508
La Jolla, CA 92093
Tel: 858/534-5713
E-Mail: jeffclemens@ucsd.edu

Joshua D. Gottlieb
University of Chicago
Harris School of Public Policy
1307 E. 60th St.
Chicago, IL 60637
E-Mail: jgottlieb@uchicago.edu

Timea Laura Molnar
Central European University
Department of Economics and Business
Quellenstrasse 51
 Vienna, 1100
Austria
E-Mail: molnartl@ceu.edu
AB  - Why do private insurers closely link their physician payment rates to the Medicare fee schedule despite its well-known limitations? We ask to what extent this relationship reflects the use of Medicare's relative price menu as a benchmark, in order to reduce transaction costs in a complex pricing environment. We analyze 91 million claims from a large private insurer, which represent $7.8 billion in spending over four years. We estimate that 75 percent of services, accounting for 55 percent of spending, are benchmarked to Medicare's relative prices. The Medicare-benchmarked share is higher for services provided by small physician groups. It is lower for capital-intensive treatment categories, for which Medicare's average-cost reimbursements deviate most from marginal cost. When the insurer deviates from Medicare's relative prices, it adjusts towards the marginal costs of treatment. Our results suggest that providers and private insurers coordinate around Medicare's menu of relative payments for simplicity, but innovate when the value of doing so is likely highest.
ER  -