Saving Lives or Saving Money? Understanding the Dual Nature of Physician Preferences

Alice Chen, Darius N. Lakdawalla

NBER Working Paper No. 21930
Issued in January 2016
NBER Program(s):Aging, Health Care, Health Economics

A longstanding literature highlights the tension between the altruism of physicians and their desire for profit. We develop new implications for how these competing forces determine pricing and utilization. Altruism encourages providers to reduce utilization in response to higher prices, but profit-maximization does the opposite. Rational physicians behave more altruistically when treating poorer patients or those facing higher medical costs, and when foregone profits are lower. These insights help explain observed heterogeneity in pricing dynamics. We show that average price elasticities vary from 0.6 to 1.1 for a given physician, depending on the patient socioeconomic status and out-of-pocket cost burden. This finding has important implications for the design of reimbursement by Medicare Parts A and B, and benefit design within Part D.

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Document Object Identifier (DOI): 10.3386/w21930

Published: A. Chen & D. Lakdawalla, 2017. "SAVING LIVES OR SAVING MONEY? UNDERSTANDING THE DUAL NATURE OF PHYSICIAN PREFERENCES," Innovation in Aging, vol 1(suppl_1), pages 1343-1343.

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