THE ANATOMY OF PHYSICIAN PAYMENTS: CONTRACTING SUBJECT TO COMPLEXITY

摘要

The reimbursement rates that private insurers pay to physicians are closely linked to those set by Medicare, despite the well-known limitations of Medicare's fee schedule. 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 an otherwise complex pricing environment. We analyze 71 million claims from a large private insurer, which represent $6.3 billion in spending over three years. Using two empirical approaches, we estimate that 75 percent of services, accounting for 65 percent of dollars, 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 pricing. When the insurer deviates from Medicare's relative prices, these deviations are consistent with adjusting 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.