Topics in Health Care and Industrial Organization
Paper Session
Friday, Jan. 3, 2025 2:30 PM - 4:30 PM (PST)
- Chair: Matthew Grennan, University of California-Berkeley
Entry and Competition in Insurance Markets: Evidence from Medicare Advantage
Abstract
Governments frequently turn to private markets to deliver public benefits. This structure can lower the government's costs if it designs a payment system that attracts competitive firms with cost controls the government lacks. In this paper, I analyze the implications of this system for the Medicare Advantage program. I use administrative data to develop and estimate a model of firm entry and product offering decisions that captures how firms endogenously respond to government policies as well as consumer sorting and utilization of health insurance. I then use the model to simulate other payment policies in Massachusetts. I find that under the current design, the government overpays firms for their participation and the enrollment they generate. Under a policy that lowers firm payments and transfers a portion of this money to consumers, the government can reduce spending by 1\% (\$10 billion when applied nationally). This policy leads to similar firm participation and enrollment in Medicare Advantage, while reversing the historic positive selection into the program and the government's higher per-beneficiary payments for those in Medicare Advantage relative to Traditional Medicare.Physicians as Persuaders: Evidence from Hospitals in China
Abstract
I estimate a Bayesian persuasion model to examine how financial incentives and asymmetric information shape physician-patient interactions. This approach offers new insights into the role of insurance. First, the model predicts that patients' coinsurance moderates physicians' responsiveness to increases in service fees. This prediction is supported by a difference-in-differences analysis using Chinese health insurance claims data with random variation in physicians' reimbursement and patients' coinsurance rates. Second, the model implies that lower coinsurance rates reduce both patient price elasticity and skepticism, increasing the likelihood of physicians misdirecting patients toward unnecessary treatments. Using structural model estimates, I show that for a diagnosis where surgical treatment is discretionary, nearly half of the patients who received surgery would not have done so were they fully informed. Such misdirection from physicians is greater when coinsurance rates decrease, highlighting a new inefficiency channel beyond moral hazard. I decompose the effect of lowering coinsurance into moral hazard and the novel greater misdirection effects. Counterfactual analysis shows that, while patients benefit from lower out-of-pocket costs, greater misdirection nearly offsets these welfare gains.When are Patents Traded and Why: A Dynamic Structural Model of Drug Development and Patent Trading
Abstract
Reallocating patents to firms more proficient in their utilization can improve welfare. Moreover, the timing of such trades significantly impacts innovation outcomes. I construct a unique dataset that captures interactions between patent trades and the drug development within the U.S. pharmaceutical sector, and find that 82% of patents are traded before the associated drug hits the market. Drugs involved in patent trades are also more likely to advance to the launch stage compared to those without patent trades. I construct a dynamic structural model for the development process of a new drug, taking into account crucial factors such as trade dynamics, firms’ comparative advantages, transaction costs, and search frictions at various stages of the development process, encompassing discovery, clinical trials, FDA approval, and product launch. The estimation of this model reveals that (i) firms with greater stage-specific experience enjoy reduced development costs at the corresponding stage; (ii) transferring patents to firms with lower development costs enhances the likelihood of a drug advancing to subsequent stages; and (iii) market frictions in patent trading exhibit significant variation across different phases of drug development, with transaction costs reaching their peak before New Drug Application with FDA. Counterfactual analyses show that reducing transaction costs within the patent market at pivotal stages significantly increases the likelihood of drug success and the market value of the drug.JEL Classifications
- I11 - Analysis of Health Care Markets
- L1 - Market Structure, Firm Strategy, and Market Performance