Top-up Design and Health Care Expenditure: Evidence from Cardiac Stents

Since 2006, Taiwan's National Health Insurance (NHI) has covered the full cost of baseline treatment in cardiac stents (bare-metal stents, BMS). Still, it requires patients to pay the incremental cost of more expensive treatments (drug-eluting stents, DES). Within this “top-up” design, we study how hospitals responded to a 26% cut of the NHI reimbursement rate in 2009. We find that minor teaching hospitals that were more revenue reliant on cardiac patients, relative to other minor teaching hospitals, increased BMS usage per stent patient and raised DES prices, which, in turn, reduced the use of DES stents. These changes helped such minor teaching hospitals recoup up to 32.7% of the revenue loss from the NHI rate cut in 2009-2010. In comparison, we find little effects in the major teaching hospitals. Overall, the rate cut was effective in reducing NHI expenditure without any substantial changes in patient outcomes, although some minor teaching hospitals made moral hazard adjustments in response.