In the Shadow of a Giant: Medicare’s Influence on Private Physician Payments

Jeffrey P. Clemens

University of California, San Diego (UCSD) – Department of Economics; NBER

Joshua D. Gottlieb

University of British Columbia (UBC) – Department of Economics; National Bureau of Economic Research (NBER); Stanford Institute for Economic Policy Research (SIEPR)

October 2013

NBER Working Paper No. w19503


We demonstrate Medicare’s influence on private insurers’ payments for physicians’ services. Using a large administrative change in payments for surgical versus medical care, we find that private prices follow Medicare’s lead. A $1 change in Medicare’s fees moved private prices by $1.16. A second set of Medicare payment changes, which generated area-specific reimbursement shocks, had a similar effect on private sector prices. Medicare’s influence is strongest in areas with concentrated insurers, small physician groups, and competitive physician markets. The public sector’s influences on system-wide resource allocation and costs extend well beyond the share of health expenditures it finances directly.

In the Shadow of a Giant- Medicare’s Influence on Private Physician Payments

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