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

Jeffrey Clemens and Joshua Gottlieb

Journal of Political Economy, 2017, vol. 125, issue 1, 1 - 39

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.

Date: 2017
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Working Paper: In the Shadow of a Giant: Medicare's Influence on Private Physician Payments (2013)
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