Do Physicians' Financial Incentives Affect Medical Treatment and Patient Health?

Am Econ Rev. 2014 Apr;104(4):1320-1349. doi: 10.1257/aer.104.4.1320.


We investigate whether physicians' financial incentives influence health care supply, technology diffusion, and resulting patient outcomes. In 1997, Medicare consolidated the geographic regions across which it adjusts physician payments, generating area-specific price shocks. Areas with higher payment shocks experience significant increases in health care supply. On average, a 2 percent increase in payment rates leads to a 3 percent increase in care provision. Elective procedures such as cataract surgery respond much more strongly than less discretionary services. Non-radiologists expand their provision of MRIs, suggesting effects on technology adoption. We estimate economically small health impacts, albeit with limited precision.

MeSH terms

  • Angioplasty / economics
  • Angioplasty / statistics & numerical data
  • Back Pain / diagnostic imaging
  • Cardiac Catheterization / economics
  • Cardiac Catheterization / statistics & numerical data
  • Delivery of Health Care / economics*
  • Delivery of Health Care / statistics & numerical data*
  • Exercise Test / economics
  • Exercise Test / statistics & numerical data
  • Health Status
  • Humans
  • Magnetic Resonance Imaging / economics*
  • Magnetic Resonance Imaging / statistics & numerical data*
  • Medicare / economics
  • Outcome Assessment, Health Care / economics
  • Practice Patterns, Physicians' / economics*
  • Reimbursement, Incentive*
  • United States
  • Unnecessary Procedures / economics
  • Unnecessary Procedures / statistics & numerical data