Firm Responses to Targeted Consumer Incentives

Evidence from Reference Pricing for Surgical Services

Published in: Journal of Health Economics Volume 61 (September 2018), Pages 111-133. doi:10.1016/j.jhealeco.2018.06.012

Posted on RAND.org on October 17, 2018

by Christopher M. Whaley, Timothy T. Brown

This paper examines how health care providers respond to a reference pricing insurance program that increases consumer cost sharing when consumers choose high-priced surgical providers. We use geographic variation in the population covered by the program to estimate supply-side responses. We find limited evidence of market segmentation and price reductions for providers with baseline prices above the reference price. Finally, approximately 75% of the reduction in provider prices is in the form of a positive externality that benefits a population not subject to the program.

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