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J Polit Econ. 2017 Feb;125(1):1-39. doi: 10.1086/689772. Epub 2016 Dec 16.

In the Shadow of a Giant: Medicare's Influence on Private Physician Payments.

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1
University of California, San Diego, and National Bureau of Economic Research.
2
University of British Columbia and National Bureau of Economic Research.

Abstract

We analyze Medicare's influence on private insurers' payments for physicians' services. Using a large administrative change in reimbursements for surgical versus medical care, we find that private prices follow Medicare's lead. A $1.00 increase in Medicare's fees increases corresponding private prices by $1.16. A second set of Medicare fee changes, which generates area-specific payment shocks, has a similar effect on private reimbursements. Medicare's influence is strongest in areas with concentrated insurers and competitive physician markets, consistent with insurer-doctor bargaining. By echoing Medicare's pricing changes, these payment spillovers amplify Medicare's impact on specialty choice and other welfare-relevant aspects of physician practices.

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