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

J Polit Econ. 2017 Feb;125(1):1-39. doi: 10.1086/689772. Epub 2016 Dec 16.


We analyze Medicare's influence on private insurers' payments for physicians' services. Using a large administrative change in reimbursements for surgical versus medical care, we find that private prices follow Medicare's lead. A $1.00 increase in Medicare's fees increases corresponding private prices by $1.16. A second set of Medicare fee changes, which generates area-specific payment shocks, has a similar effect on private reimbursements. Medicare's influence is strongest in areas with concentrated insurers and competitive physician markets, consistent with insurer-doctor bargaining. By echoing Medicare's pricing changes, these payment spillovers amplify Medicare's impact on specialty choice and other welfare-relevant aspects of physician practices.

Publication types

  • Research Support, N.I.H., Extramural
  • Research Support, Non-U.S. Gov't