Three essays on physician pricing

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Virginia Tech


This dissertation focuses on three different aspects of physician pricing. The first is the use of the assumption in formal modeling that physicians have the same type of costs for different types of patients. The second aspect of physician pricing investigated here is physicians’ ability to change the name of a service in response to a fee cap without actually changing the price of the service. The third aspect investigated in this dissertation is the effect of posting physician prices on patient-initiated demand for physician services. All three of these aspects have potential implications for the discussion on health care reform.

In Chapter One, I examine physician price response to fee ceilings set by third party payers. I use the realistic assumptions that physician’s have the same cost function for all their patients and physicians have increasing marginal cost. Using these assumptions, I find that, in theory, a third party payer that uses fixed fees benefits from including every physician in the community.

In chapter two, I use the medical claims data from a Fortune 500 firm (Firm) to evaluate physician pricing response to the Firm’s institution of fee ceilings. I find that physicians who are constrained by the fee ceiling systematically record a more expensive office visit code than physicians who were not constrained by the fee ceiling. This result has implications for private insurers as well as government programs that fix physician fees.

In chapter three I use a model of patient-initiated demand under uncertainty to examine the effect of posting physician prices on the demand for physician services. I find that requiring physicians with monopoly power to post all or some of their prices has no effect on the total patient cost associated with physician consultations, including the cost of untreated disease. If physicians compete in a Bertrand fashion, then requiring a physician to post the prices of all types of consultations results in lower total patient cost than posting only some prices.