NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Hospital Choices, Hospital Prices and Financial Incentives to Physicians

Kate Ho, Ariel Pakes

NBER Working Paper No. 19333
Issued in August 2013
NBER Program(s):   HC   IO

We estimate an insurer-specific preference function which rationalizes hospital referrals for privately-insured births in California. The function is additively separable in: a hospital price paid by the insurer, the distance traveled, and plan and severity-specific hospital fixed effects (capturing hospital quality). We use an inequality estimator that allows for errors in price and detailed hospital-severity interactions and obtain markedly different results than those from a logit. The estimates indicate that insurers with more capitated physicians are more responsive to price. Capitated plans send patients further to utilize similar-quality lower-priced hospitals; but the cost-quality trade-off does not vary with capitation rates.

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This paper was revised on March 31, 2014

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Document Object Identifier (DOI): 10.3386/w19333

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