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


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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