Physician responses to financial incentives: An analysis of how capitation affects time spent with patient

Previous attempts to provide evidence on physician responses to financial incentives have been unable to control for the selection of physicians into different financial arrangements (such as managed care organizations (MCOs)), decisions that are partially determined by unobserved factors that may also affect other aspects of physician behavior.;To test the hypothesis that physicians respond to financial incentives, I use the National Ambulatory Medical Care Survey (NAMCS), a panel dataset that contains information about a sample of office visits for each surveyed physician. I exploit within-physician variation in reimbursement to determine whether patients with capitated insurance coverage receive treatment that is less resource-intensive than their non-capitated counterparts. I find evidence that physicians respond, at least in part, to financial incentives in a manner that is consistent with profit-maximization. Specifically, I find that physicians with managed care capitated contracts spend less time with their capitated patients.;Having established that physicians respond to a particular financial incentive by decreasing time spent with their capitated patients, I turn to examine how this response varies with physician practice style. I shift focus in Chapter Two to see how "practice style" is influenced by physician and practice characteristics by modeling the "fixed effects" estimated in Chapter One. I do not find the proportion of a physician's patients who have capitated insurance to be correlated with physician practice style in a way that is reflected in the time she spends with her patients.;In Chapter Three, I present a model of physician behavior wherein the response of physicians to financial incentives is allowed to vary by physician. Making assumptions about how observable practice characteristics affect the ease with which physicians can alter their behavior to maximize their income, I examine whether physicians with high "response costs" are less likely to respond to financial incentives. I find no evidence that physician response to the capitation incentive is different for physicians with different practice characteristics. In particular, I do not find variables that may reflect differential costs of response to have a statistically significant effect on physicians' response to the capitation incentive.