Essays in Health Economics

This dissertation studies the U.S. healthcare market, with a focus on provider behaviors and their implications for market efficiency. The first chapter examines physician learning and treatment choices. Physicians often choose among alternative treatment options based on their beliefs over the treatment effectiveness and their skills in delivering the treatment. I examine how two kinds of physician learning jointly shape their treatment choices: Bayesian learning that updates beliefs about treatment-patient match values and learning by doing that improves surgical skills. Using case-level data on the history of brain aneurysm treatments by over 200 physicians, I find that both kinds of learning are present and that physicians are forward-looking. In light of these empirical patterns, I develop and estimate a dynamic structural model of physician learning and treatment choices for heterogeneous patients. I then disentangle the impacts of the two kinds of learning and explore to what extent forward-looking physicians deviate from myopic best choices. Physicians are more than twice as likely to experiment on unhealthy patients than healthy ones, which hurts short-term outcomes but improves overall treatment success rates by 13-17%. I also evaluate the impacts of several alternative payment schedules. Uniform payments across treatments facilitate the adoption of the new treatment while outcome-contingent payments have heterogeneous effects across physicians. The heterogeneity highlights the coexistence of two opposing effects: the incentive to exploit the myopic best option and the incentive to experiment with less familiar options due to the increased return from learning. The second chapter (co-authored with Hanming Fang) proposes a novel and easy-to-implement approach to detect potential overbilling based on the hours worked implied by the service codes physicians submit to Medicare. Using the Medicare Part B Fee-for-Service (FFS) Physician Utilization and Payment Data in 2012 and 2013 released by the Centers for Medicare and Medicaid Services, we construct estimates for physicians\u27 hours spent on Medicare beneficiaries. We find that about 2,300 physicians, representing about 3% of those with 20 or more hours of Medicare Part B FFS services, have billed Medicare over 100 hours per week. We consider these implausibly long hours