Strategic Pricing and Competitive Procurement in the Physician Services Market

Abstract

We propose and test a model of the strategic interaction between public and private insurers in the physician services market. We depart from the standard healthcare service pricing model and allow physicians to (partially) adjust patient access based on price differences between insurers. Analysis of private and public sector insurer prices and public sector quantities supports the hypothesis that physicians respond to insurer price differences: A 10% increase in private prices decreases public beneficiaries’ share of physician services by 4%, equivalent to a per capita decrease of 1%-14% in services per public beneficiary, ceteris paribus.

Keywords: Physician, pricing, Medicare

JEL Classification: I11, I13, I18