Firm responses to targeted consumer incentives: Evidence from reference pricing for surgical services

Abstract

This paper examines how health care providers respond to a reference pricing insurance program that increases consumer cost sharing when consumers choose high-priced surgical providers. We use geographic variation in the population covered by the program to estimate supply-side responses. We find limited evidence of market segmentation and price reductions for providers with baseline prices above the reference price. Finally, approximately 75% of the reduction in provider prices is in the form of a positive externality that benefits a population not subject to the program.

Keywords: Health care markets; Provider prices; Reference pricing.

Fig. A.1.

Distribution of CalPERS exposure.

Fig. A.2.

HHI distribution.

Fig. B.1.

Contemporaneous shocks test.

Fig. 1.

Distribution of provider prices. Each figure presents the distribution of each provider’s negotiated prices for the Anthem PPO in 2011. The blue line shows the distribution for services received at an ambulatory surgical center (ASC) and the red line shows prices for services received at an hospital outpatient department (HOPD).

Fig. 2.

Reference pricing illustration.

Fig. 3.

Variation in CalPERS exposure. This map shows the share of the commercially insured population that is enrolled in the CalPERS PPO subject to reference pricing.

Fig. 4.

Distribution of CalPERS exposure. This figure shows the density in the log-transformed share of the commercially insured population that is enrolled in the CalPERS PPO subject to reference pricing.

Fig. 5.

Parallel trends test. These figures plot the quarterly association between provider prices and exposure to CalPERS. The solid line represents the log-difference in prices for a 1-unit change in log-exposure to CalPERS. The dashed lines represent a 95% confidence interval. The vertical line indicates the implementation of the CalPERS reference pricing program. The top panel presents results for ambulatory surgical centers, while the bottom panel presents results for hospital outpatient departments.

Fig. 6.

Parallel trends test: high vs. low-priced providers. These figures plot the quarterly association between provider prices and exposure to CalPERS based on each provider’s baseline price relative to the reference price. The solid line represents the log-difference in prices for a 1-unit change in log-exposure to CalPERS for a providers with a baseline price above the reference price relative to providers with prices below the reference price at baseline. The dashed lines represent a 95% confidence interval. The vertical line indicates the implementation of the CalPERS reference pricing program. The top panel presents results for ambulatory surgical centers, while the bottom panel presents results for hospital outpatient departments.