Disertation Title:  "Essays on Health Care Regulation"

This dissertation consists of three chapters on the regulation of health care markets.

In the first chapter, I examine one widely-touted solution for reducing health care prices -- setting prices via competitive bidding -- in the context of a Medicare payment reform. The reform gradually replaced administratively-set prices with prices from competitive bidding for durable medical equipment (DME) in 100 metropolitan statistical areas. Using detailed claim-level data, I estimate that the competitive bidding program reduced the prices of covered items by 45%. However, the program also generated an 11% reduction in quantity, which several pieces of evidence suggest is associated with inefficient supply shortages. One likely cause of the shortage is the auction design, which allows winning bidders to renege on supply commitment. Leveraging novel bid data, I estimate an equilibrium model of optimal bidding and find that the program generated prices that were on average 6% below the market clearing price, which is consistent with the observed supply shortages. I use the results to show that counterfactual auction designs could reach the desired market quantity while saving 43% in government spending relative to administratively-set prices. The analysis highlights the importance of auction design in achieving desirable outcomes, and suggests that a well-designed competitive bidding program could potentially generate large savings in health care.

In the second chapter, Liran Einav, Amy Finkelstein, Neale Mahoney, and I study the economics of voluntary regulation in the context of a Medicare payment reform, in which one medical provider receives a single, predetermined payment for a sequence of related healthcare services, instead of separate service-specific payments. This “bundled payment” program was originally implemented as a 5-year randomized trial, with mandatory participation by hospitals assigned to the new payment model; however, after two years, participation was made voluntary for half of these hospitals. Using detailed claim-level data, we document that voluntary participation is more likely for hospitals that can increase revenue without changing behavior (“selection on levels”) and for hospitals that had large changes in behavior when participation was mandatory (“selection on slopes”). To assess outcomes under counterfactual regimes, we estimate a stylized model of responsiveness to and selection into the program. We find that the current voluntary regime generates inefficient transfers to hospitals, and that alternative (feasible) designs could reduce these inefficient transfers and raise welfare. Our analysis highlights key design elements to consider under voluntary regulation.

In the third chapter, Edward Kong and I study the factors associated with hospitals' decisions to comply with a government regulation that requires them to publicly post the prices they negotiate with insurance companies by January 1, 2021. We collected novel compliance data on all acute care hospitals in the US and find that as of the end of 2021, 68% of the hospitals were compliant. We find substantial heterogeneity in compliance rate by hospital characteristics. We find evidence that competitive motivations may play a role in the compliance decision: hospitals in less competitive markets have higher rates of compliance. We also find associations between hospital resources and compliance: hospitals with fewer resources tend to be less compliant.