Essays on the Economics of Health Care

This dissertation has two chapters on health care provider decision-making. The first chapter, titled “Designing Contracts for Multitasking Groups: A Structural Model of Accountable Care Organizations,” estimates a structural model of multitasking agents to investigate the cost-quality tradeoff in healthcare and design contracts for a large physician incentive program. The setting involves Medicare’s Accountable Care Organizations (ACOs), which are groups of healthcare providers that receive incentive pay for spending below a cost target on shared patients. I incorporate three important aspects of this setting into the model: (i) healthcare providers make multitasking effort choices concerning quality of care and cost reduction; (ii) providers in the incentive program are paid based on group performance, so they act strategically and may free-ride; and (iii) a provider’s decision to participate in the incentive program depends on anticipated earnings. By estimating the model, I identify the tradeoff between quality of care and reducing cost, and I show that multitasking plays a large role in determining agent decisions. Counterfactual simulations indicate the contract that maximizes only the monetary savings of the incentive program increases savings by over$700 million per year, but it decreases quality of care by two standard deviations. Another counterfactual shows free-riding within ACOs decreases program savings by over $1 billion per year. The second chapter, titled “Spillovers between Medicare and Medicaid: Evidence from the Supply-Side and Payment Parity,” studies the effect of a large increase in Medicaid reimbursement rates on the volume and type of services physicians provide to Medicarebeneficiaries. I find that in response to the Medicaid “fee bump,” physicians that qualified for increased Medicaid fees decreased the number of Medicare beneficiaries they served by 0.3 percent. This spillover, however, was not uniform among Medicare beneficiaries: provision of services designated for established Medicare patients decreased by 7.2 percent, yet provision of services designated for new Medicare patients increased by 1.1 percent. These resultsare consistent with the predictions of a mixed-economy model of physician decision-making, and they indicate that while the Medicaid fee bump decreased service provision to some Medicare beneficiaries, it also facilitated increased service provision to others by decreasing the marginal cost of care.