Working Paper: NBER ID: w4822
Authors: John A. Rizzo; Jody L. Sindelar
Abstract: This paper models the physician services market which is regulated by two government agencies. The Health Care Financing Administration (HCFA) sets Medicare physician fees through the newly implemented Resource Based Relative Value Scale (RBRVS). The Agency for Health Care Policy and Research (AHCPR) sets practice guidelines for quality. We analyze welfare losses which occur when agencies fail to coordinate their regulatory activities. Specifically, we consider the welfare impacts for cost, quality, practice characteristics, and quantity of care. Perceived ills in the market for physician services, such as excessive expenditures and overly intensive treatment, may be traced to coordination failures. Thus, even if physicians were to act as perfect agents for their patients, and even if moral hazard were to be eliminated, coordination failure could cause the critical problems associated with the physician services market to persist. Although the model is applied to the market for physician services, it can be readily generalized to other settings involving multiple regulators.
Keywords: regulation; healthcare; physician services; coordination failures; welfare losses
JEL Codes: I11; I18
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Coordination Failure (P11) | Welfare Loss (D69) |
| Coordination Failure (P11) | Cost (D61) |
| Coordination Failure (P11) | Quality (L15) |
| Coordination Failure (P11) | Quantity of Care (I11) |
| Cost (D61) | Welfare Loss (D69) |
| Quality (L15) | Welfare Loss (D69) |
| Practice Characteristics (L84) | Welfare Loss (D69) |