Does Treatment Respond to Reimbursement Rates? Evidence from Trauma Care

40 Pages Posted: 30 Jan 2009

See all articles by Paul S. Heaton

Paul S. Heaton

University of Pennsylvania Carey Law School

Eric Helland

Claremont McKenna College - Robert Day School of Economics and Finance; RAND

Date Written: January 29, 2009

Abstract

Some models of provider behavior predict that physicians, like other experts, may respond dysfunctionally to financial incentives by recommending unnecessary treatment. The authors empirically test this relationship using data from inpatient hospitalizations surrounding a 2003 Colorado auto insurance reform. The reform shifted a large fraction of auto injury patients from coverage through auto insurers to less generous sources of reimbursement, such as health insurance and self-pay. Despite negligible changes in auto injury characteristics during this period, treatment supply increased following the reform. Procedure use rose by 5-10% and billed charges rose by 5%, and these increases are specific to auto but not other types of traumatic injury. These changes appear to reflect an increase in real resources devoted to treatment, but do not improve mortality outcomes. The findings are consistent with models of physician-induced demand.

Keywords: insurance, no-fault, physician-induced demand

JEL Classification: I11, G22, K13

Suggested Citation

Heaton, Paul S. and Helland, Eric A., Does Treatment Respond to Reimbursement Rates? Evidence from Trauma Care (January 29, 2009). RAND Working Paper No. WR-648-ICJ, Available at SSRN: https://ssrn.com/abstract=1335022 or http://dx.doi.org/10.2139/ssrn.1335022

Paul S. Heaton (Contact Author)

University of Pennsylvania Carey Law School ( email )

3501 Sansom Street
Philadelphia, PA 19104
United States

HOME PAGE: http://https://www.law.upenn.edu/cf/faculty/pheaton/

Eric A. Helland

Claremont McKenna College - Robert Day School of Economics and Finance ( email )

500 E. Ninth St.
Claremont, CA 91711-6420
United States
909-607-7275 (Phone)
909-621-8243 (Fax)

RAND ( email )

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Santa Monica, CA
United States

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