Hospital Choices, Hospital Prices, and Financial Incentives to Physicians

Area of Science:

• Health economics
• Healthcare management
• Medical economics

Background:

• Understanding hospital referral patterns is crucial for healthcare cost containment and quality improvement.
• Insurer preferences significantly influence patient access to healthcare services, particularly for childbirth.

Purpose of the Study:

• To estimate an insurer-specific preference function that explains hospital referral decisions for privately insured births in California.
• To analyze how insurer characteristics, such as physician capitation rates, affect hospital choice based on price, distance, and quality.

Main Methods:

• Utilized an inequality estimator to model insurer preferences, accounting for price, travel distance, and hospital-specific quality indicators.
• Incorporated detailed hospital-severity interactions and allowed for errors in price data, diverging from traditional logit models.

Main Results:

• Insurers with a higher proportion of capitated physicians demonstrated greater price responsiveness in their hospital referral decisions.
• Capitated health plans were observed to refer patients to hospitals located farther away, seeking lower prices for comparable quality.
• The trade-off between healthcare costs and quality did not significantly differ based on the level of physician capitation within health plans.

Conclusions:

• Insurer price sensitivity is influenced by physician payment models, specifically capitation.
• Healthcare policy should consider the impact of payment structures on hospital utilization and patient referral patterns.
• While capitation incentivizes price-seeking behavior, it does not alter the fundamental cost-quality considerations in hospital selection for childbirth.