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Non-transparent information about prices is a key piece of many economic models. George Stigler's seminal work first formulated how 'search costs' lead to price dispersion in provider prices. For several decades, refining the relationship between search costs and prices was a key component of the economics literature. With growth of the internet, consumer information about prices has increased substantially. The growth of online retailers has led to substantial decreases in search costs by providing an easy mechanism to compare prices. Recent technologies have expanded the internet's search-cost reducing powers to the healthcare sector. Compared to other markets, healthcare prices exhibit an enormous amount of price variation and have traditionally been among the most non-transparent of any market. The lack of meaningful price transparency has traditionally made price shopping for healthcare services nearly impossible. As consumer cost-sharing increases, led by the growth in high-deductible health plans, there is a strong imperative to provide the tools necessary for consumers to shop for care. Without accurate price information, increases in consumer cost-sharing will simply shift expenses from employers and insurers to consumers. While the hope is that 'price transparency' information will encourage consumers to shop for care, little is known about how consumers actually use price information. The first chapter of this dissertation uses detailed data from a leading online price transparency firm to examine the consumer effects of price transparency. Large price effects are found for commodity-like services as consumers shift demand from expensive to less-expensive providers. For physician office visits, which entail a more personal relationship, the largest effects are for non-price information, such as provider gender and length of practice. Even less is known about how providers will respond to consumers using price transparency information to shop for care. Healthcare providers have not traditionally had to account for consumers making decisions based on price and have simply negotiated prices with insures. With the growth of consumer cost-sharing and price transparency, this paradigm will undoubtedly change. The second chapter uses the same data to estimate an initial look at how providers respond to consumer price transparency. Following the consumer analysis, large effects are found for non-differentiated products. Consistent with Stigler's observations, reducing consumer search costs leads to both reductions in consumer prices and the prices that providers charge. The third chapter of this dissertation examines a similar topic as the second, how providers respond to increases in consumer-cost sharing. This chapter leverages the implementation of a Reference-Based Benefit (RBB) design by the California Public Employees Retirement System (CalPERS) that capped reimbursements for certain procedures. Previous work has documented large consumer effects to the RBB program but how providers respond has not been studied in detail. The results show large price reductions by providers who have the largest exposure to the CalPERS population. As a means to reduce the growth in healthcare spending, employers and insurers have implemented innovative benefit designs and technologies. These changes are largely driven by the recognition that the current healthcare ecosystem has evolved into a market with substantial price variation and no link between price and quality. Consumer cost-sharing and price transparency provide both the incentive and the means to steer patients away from high-cost providers. As these innovations have their desired effects, this dissertation shows how providers respond accordingly. These tandem consumer and provider responses to price transparency and target cost-sharing result in general equilibrium effects that lead to less expensive healthcare and a more efficient healthcare market.
Addressing the challenge of covering heath care expenses—while minimizing economic risks. Moral hazard—the tendency to change behavior when the cost of that behavior will be borne by others—is a particularly tricky question when considering health care. Kenneth J. Arrow’s seminal 1963 paper on this topic (included in this volume) was one of the first to explore the implication of moral hazard for health care, and Amy Finkelstein—recognized as one of the world’s foremost experts on the topic—here examines this issue in the context of contemporary American health care policy. Drawing on research from both the original RAND Health Insurance Experiment and her own research, including a 2008 Health Insurance Experiment in Oregon, Finkelstein presents compelling evidence that health insurance does indeed affect medical spending and encourages policy solutions that acknowledge and account for this. The volume also features commentaries and insights from other renowned economists, including an introduction by Joseph P. Newhouse that provides context for the discussion, a commentary from Jonathan Gruber that considers provider-side moral hazard, and reflections from Joseph E. Stiglitz and Kenneth J. Arrow. “Reads like a fireside chat among a group of distinguished, articulate health economists.” —Choice
The United States has the highest per capita spending on health care of any industrialized nation but continually lags behind other nations in health care outcomes including life expectancy and infant mortality. National health expenditures are projected to exceed $2.5 trillion in 2009. Given healthcare's direct impact on the economy, there is a critical need to control health care spending. According to The Health Imperative: Lowering Costs and Improving Outcomes, the costs of health care have strained the federal budget, and negatively affected state governments, the private sector and individuals. Healthcare expenditures have restricted the ability of state and local governments to fund other priorities and have contributed to slowing growth in wages and jobs in the private sector. Moreover, the number of uninsured has risen from 45.7 million in 2007 to 46.3 million in 2008. The Health Imperative: Lowering Costs and Improving Outcomes identifies a number of factors driving expenditure growth including scientific uncertainty, perverse economic and practice incentives, system fragmentation, lack of patient involvement, and under-investment in population health. Experts discussed key levers for catalyzing transformation of the delivery system. A few included streamlined health insurance regulation, administrative simplification and clarification and quality and consistency in treatment. The book is an excellent guide for policymakers at all levels of government, as well as private sector healthcare workers.
Many Americans believe that people who lack health insurance somehow get the care they really need. Care Without Coverage examines the real consequences for adults who lack health insurance. The study presents findings in the areas of prevention and screening, cancer, chronic illness, hospital-based care, and general health status. The committee looked at the consequences of being uninsured for people suffering from cancer, diabetes, HIV infection and AIDS, heart and kidney disease, mental illness, traumatic injuries, and heart attacks. It focused on the roughly 30 million-one in seven-working-age Americans without health insurance. This group does not include the population over 65 that is covered by Medicare or the nearly 10 million children who are uninsured in this country. The main findings of the report are that working-age Americans without health insurance are more likely to receive too little medical care and receive it too late; be sicker and die sooner; and receive poorer care when they are in the hospital, even for acute situations like a motor vehicle crash.
This thesis studies the impacts of a consumer cost-sharing reform on several health economic outcomes. It is motivated in part by a need to better understand the effects of patient-cost sharing programs, which have become increasingly popular over time. Patient cost-sharing programs have become a particular subject of discussion as both public and private agencies are interested in effective ways of curbing the growth in health care spending. The specific cost-sharing program analyzed is reference pricing, which was introduced by the California Public Employees' Retirement System (CalPERS) in 2011. Reference pricing changed health insurance benefits for CalPERS PPO members such that it was now relatively more expensive for them to use higher-cost facilities (versus lower-cost facilities) when receiving certain medical procedures in the post-reference pricing period. This thesis uses detailed medical claims data to compare health outcomes and cost savings between an unaffected control group and CalPERS members. In the first chapter, Difference-in-Difference estimators are used to analyze the change in the share of patients using lower-cost health care facilities (versus higher-cost health care facilities) and the associated cost savings from this switching. Results indicate that patients are responsive to the reference pricing program and move to lower cost facilities in response to changes in the financial generosity of health insurance coverage due to reference price implementation. Furthering the analysis, instrumental variables methods are used to estimate the local average treatment effects in order to understand the treatment effects for the subpopulation of compliers. The focus is on measuring the changes in total cost-savings and health outcomes for this group. Additionally, compliers are characterized to understand how their observable characteristics tie into observed cost-savings from their movement to lower-cost health care facilities. The second chapter estimates the quantile treatment effects of the reference pricing health insurance reform. Specifically, using the estimator of Firpo, 2007, estimations of how the quantiles of the unconditional distribution of medical spending change after the introduction of reference pricing are performed. Heterogeneous impacts along the distribution of medical spending are found for the quantile treatment effect estimates. This suggests that there is not simply a location shift in the distribution of medical spending resulting from the introduction of reference pricing. Rather, some parts of the distribution are more affected than others, particularly, the right-tail of spending. These heterogeneous impacts are also larger for certain procedures and smaller for others. In the third chapter, I study how physicians' practice patterns respond to changes in patients' financial incentives, owing to the introduction of reference pricing. Motivating this analysis, I focus on issues of physician agency and how physicians' practice locations are a conduit by which cost-savings may be achieved. The results indicate that those physicians who have flexibility in where they can perform medical services are responsive to the change in the patients' cost-sharing and subsequently respond by increasingly treating CalPERS patients in lower-cost health care facilities (versus higher-cost facilities). This is measured relative to a control group who did not experience cost-sharing changes. These findings suggest that physician practice patterns are responsive to changes in patients' financial incentives.
Racial and ethnic disparities in health care are known to reflect access to care and other issues that arise from differing socioeconomic conditions. There is, however, increasing evidence that even after such differences are accounted for, race and ethnicity remain significant predictors of the quality of health care received. In Unequal Treatment, a panel of experts documents this evidence and explores how persons of color experience the health care environment. The book examines how disparities in treatment may arise in health care systems and looks at aspects of the clinical encounter that may contribute to such disparities. Patients' and providers' attitudes, expectations, and behavior are analyzed. How to intervene? Unequal Treatment offers recommendations for improvements in medical care financing, allocation of care, availability of language translation, community-based care, and other arenas. The committee highlights the potential of cross-cultural education to improve provider-patient communication and offers a detailed look at how to integrate cross-cultural learning within the health professions. The book concludes with recommendations for data collection and research initiatives. Unequal Treatment will be vitally important to health care policymakers, administrators, providers, educators, and students as well as advocates for people of color.
Thanks to remarkable advances in modern health care attributable to science, engineering, and medicine, it is now possible to cure or manage illnesses that were long deemed untreatable. At the same time, however, the United States is facing the vexing challenge of a seemingly uncontrolled rise in the cost of health care. Total medical expenditures are rapidly approaching 20 percent of the gross domestic product and are crowding out other priorities of national importance. The use of increasingly expensive prescription drugs is a significant part of this problem, making the cost of biopharmaceuticals a serious national concern with broad political implications. Especially with the highly visible and very large price increases for prescription drugs that have occurred in recent years, finding a way to make prescription medicinesâ€"and health care at largeâ€"more affordable for everyone has become a socioeconomic imperative. Affordability is a complex function of factors, including not just the prices of the drugs themselves, but also the details of an individual's insurance coverage and the number of medical conditions that an individual or family confronts. Therefore, any solution to the affordability issue will require considering all of these factors together. The current high and increasing costs of prescription drugsâ€"coupled with the broader trends in overall health care costsâ€"is unsustainable to society as a whole. Making Medicines Affordable examines patient access to affordable and effective therapies, with emphasis on drug pricing, inflation in the cost of drugs, and insurance design. This report explores structural and policy factors influencing drug pricing, drug access programs, the emerging role of comparative effectiveness assessments in payment policies, changing finances of medical practice with regard to drug costs and reimbursement, and measures to prevent drug shortages and foster continued innovation in drug development. It makes recommendations for policy actions that could address drug price trends, improve patient access to affordable and effective treatments, and encourage innovations that address significant needs in health care.
Current proposals aimed at halting the rapid growth in the costs of medical care would introduce financial incentives to encourage consumers of such care to shop for the lowest prices. One financial incentive is consumer cost-sharing. The purpose of this research is to investigate the effects of cost-sharing on the consumer's choice of primary care provider; the author examines whether cost-sharing affects the type of provider the patient chooses as the primary care source, and whether cost-sharing affects the costliness of the selected provider.