The Anatomy of Physician Payments: Contracting Subject to Complexity

91 Pages Posted: 19 Oct 2015 Last revised: 19 Feb 2021

See all articles by Jeffrey P. Clemens

Jeffrey P. Clemens

University of California, San Diego (UCSD) - Department of Economics; NBER

Joshua D. Gottlieb

University of Chicago; National Bureau of Economic Research (NBER)

Timea Laura Molnar

University of British Columbia (UBC) - Vancouver School of Economics

Date Written: October 2015

Abstract

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.

Suggested Citation

Clemens, Jeffrey P. and Gottlieb, Joshua D. and Laura Molnar, Timea, The Anatomy of Physician Payments: Contracting Subject to Complexity (October 2015). NBER Working Paper No. w21642, Available at SSRN: https://ssrn.com/abstract=2675915

Jeffrey P. Clemens (Contact Author)

University of California, San Diego (UCSD) - Department of Economics ( email )

9500 Gilman Drive
La Jolla, CA 92093-0508
United States

HOME PAGE: http://econweb.ucsd.edu/~j1clemens/

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Joshua D. Gottlieb

University of Chicago ( email )

1307 E. 60th St.
Chicago, IL 60637
United States

HOME PAGE: http://www.gottlieb.ca/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

HOME PAGE: http://papers.nber.org/authors/joshua_gottlieb

Timea Laura Molnar

University of British Columbia (UBC) - Vancouver School of Economics ( email )

997-1873 East Mall
Vancouver, British Columbia V6T 1Z1
Canada

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
11
Abstract Views
386
PlumX Metrics