"Lagged-Price Reimbursement Contracts: The Impact of Medicare Part B on Pharmaceutical Price Growth " with Keith Ericson and Amanda Starc [October 2023] NBER WP #31834
We examine cost-plus lagged-price reimbursement contracts, focusing on Medicare Part B's payment for physician-administered drugs. Our theoretical model shows that lagged-price reimbursement can raise launch prices but lower prices in later periods. While previous research showed Part B increased launch prices, we estimate its effect on later prices (net of rebates). Drugs more exposed to Medicare have lower price growth. A drug with above median Part B exposure has a 10% lower price after 3 years than a below median exposure drug that launched at the same price, with a larger effect for newly approved molecules.
"The Demand Elasticity of Health Care Spending for Low-Income Individuals" [September 2023] TSE WP 23-1477 (slides)
Low-income individuals are typically the most price sensitive segment of the market, but this is not true in the market for health care services. I show that low-income individuals have a smaller demand elasticity of medical spending with respect to coinsurance, relative to their higher income counterparts, using data from the RAND Health Insurance experiment. The null effect is driven by disproportionate share of low-income individuals who consume zero health care. The key insight is that low-income individuals may optimally consume zero health care because, when marginal utility of consumption is high, forgoing non-medical consumption becomes very costly.
"Contracting Solutions with Ethical Professional Norms" [April 2022]
I study optimal health care contracting in a principal-agent framework with altruistic providers. I find that financial incentives alone cannot correct for the inefficiencies in the health care system, but financial incentives combined with ethical professional norms (altruism) can. Despite asymmetric information and imperfect agency, systems that pay using global budgets (such as the U.K.) can achieve first best outcomes, but this requires that providers value patient benefits from costlier treatments. Failing to account for altruism and using cost-reimbursement contracts creates incentives to provide low-value care, and high-volumes of these services accrue to significant economic magnitudes.
"The Health Dimension of Redistribution: Theory and Empirics" with Amitabh Chandra and Michael Eber [Dec 2023] (draft coming soon)
While the literature on social preferences for redistribution has largely focused on income and consumption inequality, we examine the extent to which redistributive preferences depend on an additional margin–health status. We conduct a large-scale survey experiment of money allocation games designed to separately identify redistributive preferences over income and health. We find that respondents prefer to allocate transfers to sicker individuals, holding income fixed, and to lower income individuals, holding health fixed, but there is substantial heterogeneity in preferences across health conditions. Our results imply that the marginal social value of public expenditures on individuals suffering from particular types of illnesses could be very large; which consequently affects the equity-efficiency trade-off underlying optimal policy design.
“Health Insurance for Redistribution” with Myles Wagner and Anthony Yu [June 2023] (draft available upon request)
The paper studies the role of health insurance for health equity. We consider a social planner that cares about health inequality in addition to income inequality. Focusing on a restricted policy space that offers different health care subsidies for the rich and poor, we derive sufficient statistics formulas for optimal policy, which depends on three objects: demand elasticities of medical spending by income, the joint distribution of health, income, and medical spending, and social preferences. We calibrate the joint distribution of health, income and medical spending using the Medical Expenditure Panel Survey, and revisit the RAND Health Insurance experiment to recover demand elasticities by income. Then, we simulate the optimal joint health insurance policy and tax schedule using social welfare weights that approximate Utilitarian and Rawlsian welfare objectives over health and income. An egalitarian planner chooses Medicare for all, and a Rawlsian planner chooses a public insurance policy that is much more generous than current Medicaid: full coverage for individuals below 300% of the Federal Poverty Line, and partial coinsurance for the rest.
“Evaluating Prospective Payment Contracts” [Nov 2021] (draft available upon request)
This paper proposes a method for evaluating the optimality of provider reimbursement contracts that are partially retrospective, meaning that they condition payment on ex-post reported costs. In a setting where patients heterogeneously benefit from medical care, I derive the optimal linear reimbursement contract for an insurer maximizing the aggregate health of his patients. Then, I propose two claims-based methods to empirically calibrate the optimality condition of the insurer with respect to the component of the contract that reimburses retrospectively. I apply one method to the Medicare Outpatient Prospective Payment System, and find that payments are too prospective.
WORK IN PROGRESS:
"Income Loss Following Sickness" with Anup Malani
"Risk Protection Value of Moral Hazard" with Victoria Marone
"Welfare Measures Based on Willingness to Pay" with Jean-Marie Lozachmeur and François Salanié
"Physician Burnout and Administrative Burdens" with Alice Chen
"Redesigning Payment Policy for Physician Administered Drugs" with Keith Ericson and Amanda Starc NIHCM Grant Award
“A Prescription for Manipulation” with Sayeh Nikpay and Rena Conti
“Provider Payment Systems and Incentives” with Tianxu Chen, Randall P Ellis, and Taylor Watson [forthcoming] International Encyclopedia of Public Health, Third Edition.