When (and Why) Providers Do Not Respond to Changes in Reimbursement Rates

Policies to reduce health care payments can lead to health care access issues if providers reduce their supply in response to reimbursement rate reductions. We examine the impact of a policy that reduced reimbursement rates by 30% in a workers’ compensation insurance system that provided generous reimbursement rates relative to other payers even after the rate reduction. The results suggest that providers’ supply is inelastic at the part of the reimbursement distribution that we study. Our estimates indicate that the policy reduced annual workers’ compensation medical costs by over $400 million without affecting injured workers’ health care utilization or health.