Adam Sacarny, Assistant Professor of Health Policy and Management, Columbia University
Abstract: Efforts to improve the productivity of the U.S. health care system have proceeded slowly. One potential explanation is the fragmented payment system, which creates issues of common agency when multiple payers seek to influence the same health care providers. To better understand how the presence of many payers could lead to suboptimal investment in performance-raising interventions, we exploit a randomized trial that sought to change physician practice styles in the Medicare program and study its effects on commercial insurance. The intervention was a warning letter to primary care physicians that aimed to curtail overprescribing of antipsychotics, and it did not directly target commercial insurance. Physicians reduced prescribing to commercially insured patients by 12% and to Medicare patients by 16%; the difference in effects was not statistically significant. Commercial insurance cutbacks were larger for older patients, suggesting that physicians used age as a proxy for Medicare status. Given that the intended shock was tailored to public insurance, our results imply that physicians experience large costs to differentiating practice styles across payers. We discuss the implications of our findings for the welfare impacts of public interventions that seek to raise the productivity of health care and other sectors.