Hospital Choices, Hospital Prices and Financial Incentives to Physicians
We estimate a preference function which rationalizes hospital referrals for privately-insured birth episodes in California. The function varies across insurers and is additively separable in: a hospital price paid by the insurer, the distance traveled, and plan and severity-specific hospital fixed effects (capturing various dimensions of 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 inequality estimator indicates that insurers with more capitated physicians are more responsive to hospital prices. Capitated plans are willing to send patients further to utilize similar-quality lower-priced hospitals; but the trade-off between quality and costs does not vary with capitation rates.
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