Table Of ContentECONOMICS/HEAlTH POlICY i IncentIves
n
c
incentiVeS and cHoice in HealtH care e
n
a n d choIce
edited by Frank A. Sloan and Hirschel Kasper t In
i
V
A vast body of empirical evidence has accumulated demonstrating that incentives affect health
care choices made by both consumers and suppliers of health care services. Decisions in e
S
health care are affected by many types of incentives, such as the rate of return pharmaceutical health c are
manufacturers expect on their investments in research and development, or disincentives, such a
as increases in the copayments patients must make when they visit physicians or are admitted n
to hospitals.
d
In this volume, leading scholars in health economics review these new and important results
and describe their own recent research assessing the role of incentives in health care markets
c
and decisions people make that affect their personal health. The contexts include demand
decisions—choices made by individuals about health care services they consume and the health H
insurance policies they purchase—and supply decisions made by medical students, practicing o
physicians, hospitals, and pharmaceutical manufacturers.
i
Researchers and students of health economics and policy makers will find this book a c
valuable resource, both for learning economic concepts, particularly as they apply to health
e
care, and for reading up-to-date summaries of the empirical evidence. General readers will find
the book’s chapters accessible, interesting, and useful for gaining an understanding of the likely in
effects of alternative health care policies.
H
Frank a. Sloan is J. Alexander McMahon Professor of Health Policy and Management
e
and Professor of Economics at Duke University. He is the coauthor of The Price of Smoking
a
(MIT Press, 2004) and author or editor of many other books on health economics.
l
t
HirScHel kaSper is Professor of Economics at Oberlin College.
H
c
“Incentives do matter. This excellent set of chapters by prominent economists demonstrates
how health care decisions by consumers, providers, and students are affected by monetary a
and nonmonetary incentives. This book should be of interest to everyone concerned with r
health policy.” e
—Paul Feldstein, Robert Gumbiner Professor, The Paul Merage School of Business,
University of California, Irvine
“This book contains a comprehensive analysis of virtually every major issue in health economics.
It is truly remarkable that the authors, who constitute a who’s who in the field, have produced Sloan
essays that can be fully understood by the informed lay person. The book is certain to have a
and
profound impact on the public policy community, the public health community, and the public
kaSper,
at large. Bravo!”
—Michael Grossman, Distinguished Professor of Economics, City University of New York editorS
Graduate Center, and Health Economics Program Director and Research Associate,
National Bureau of Economic Research
The MIT Press
978-0-262-69365-3
edited by
Massachusetts Institute of Technology
Cambridge, Massachusetts 02142 Frank a. Sloan and HirScHel kaSper
http://mitpress.mit.edu
Incentives and Choice in
Health Care
Incentives and Choice in
Health Care
edited by Frank A. Sloan and
Hirschel Kasper
The MIT Press
Cambridge, Massachusetts
London, England
© 2008 Massachusetts Institute of Technology
All rights reserved. No part of this book may be reproduced in any form by any electronic
or mechanical means (including photocopying, recording, or information storage and
retrieval) without permission in writing from the publisher.
MIT Press books may be purchased at special quantity discounts for business or sales
promotional use. For information, please email <[email protected]> or
write to Special Sales Department, The MIT Press, 55 Hayward Street, Cambridge, MA
02142.
This book was set in Palatino by SNP Best-set Typesetter Ltd., Hong Kong. Printed and
bound in the United States of America.
Library of Congress Cataloging-in-Publication Data
Incentives and choice in health care / edited by Frank A. Sloan and Hirschel Kasper.
p. cm.
Includes bibliographical references and index.
ISBN 978-0-262-19577-5 (hardcover : alk. paper)—ISBN 978-0-262-69365-3 (pbk. : alk.
paper) 1. Medical economics. 2. Medical economics—United States. I. Sloan, Frank
A. II. Kasper, Hirschel.
RA410.I53 2008
338.4′73621—dc22
2007039861
Contents
Preface vii
Acknowledgments xi
Contributors xiii
1 Introduction 1
Frank A. Sloan and Hirschel Kasper
2 To Find the Answer, One Must Know the Question: Health
Economics and Public Policy 21
Henry J. Aaron
3 Health Capital: Theory and Empirical Evidence 51
Donna Gilleskie
4 What We Know and Don’t Know about the Effects of
Cost Sharing on the Demand for Medical Care—and So
What? 85
Joseph P. Newhouse and Anna D. Sinaiko
5 Adverse Selection and Moral Hazard: Implications for Health
Insurance Markets 103
Mark V. Pauly
6 Direct-to-Consumer Advertising in Health Care: An Overview of
Economic Issues 131
Ernst R. Berndt and Julie M. Donohue
vi Contents
7 Reefer Madness, Frank the Tank, or Pretty Woman: To What
Extent Do Addictive Behaviors Respond to Incentives? 163
John Cawley
8 Medical Career Choices and Rates of Return 195
Sean Nicholson
9 The Effects of Incentives on Pharmaceutical Innovation 227
Frank A. Sloan and Chee-Ruey Hsieh
10 Physician Fees and Behavior: Implications for Structuring a Fee
Schedule 263
Thomas G. McGuire
11 Physician Pay for Performance: Alternative Perspectives 289
Brian R. Golden and Frank A. Sloan
12 Competition, Information Provision, and Hospital
Quality 319
Gautam Gowrisankaran
13 Summing Up 353
Frank A. Sloan and Hirschel Kasper
References 371
Index 407
Preface
This book is a collection of essays by many of the preeminent
scholars in the fi eld of health economics. The authors describe
the development of research on some of today’s most important
issues in health care, and add their own recent fi ndings and
perspectives, to aid the reader in gaining a better understanding
of the role of incentives in choices by patients and providers in
health care.
The purpose of the book is to evaluate the role of incentives and
markets in a variety of health contexts, ranging from demand
decisions—individuals who make choices about the health care ser-
vices they consume and the health insurance policies they purchase as
well as their personal health more generally—to supply decisions—by
students who are considering a career in medicine practicing physi-
cians, hospitals, and pharmaceutical manufacturers.
Preliminary versions of most of the chapters were presented on the
second and third days of a conference held September 8–10, 2006, at
Oberlin College in Oberlin, Ohio. This conference assembled the
distinguished academic researchers of the chapters that are included
here, but in addition, nearly every discussant of the papers was a
graduate of Oberlin, as were most of the expert panelists, demonstrat-
ing that, as one of us experienced personally (Frank Sloan, 1964), liberal
arts colleges are the home to rising scholars and crucial research on
issues at the top of the nation’s agenda. Academic and research
economists came together at the conference with people with everyday
experience in many different aspects of the nation’s health care. The
roundtable on the fi rst day of the conference included panelists
from a wide array of health care providers and organizations. The
chief executive offi cer of the Cleveland Clinic, one of the nation’s
viii Preface
foremost research hospitals, opened the conference, and his remarks
were followed by those of an administrator of a nonprofi t multihospi-
tal chain, economists in and outside the government who evaluate
health policies, and experts from venture capital funds that help fi nance
new providers of medical devices and pharmaceutical drugs. A manu-
facturer of generic pharmaceutical drugs offered his perspective on one
panel.
In organizing this project, we viewed the conference as an important
vehicle for assembling the authors, discussants of the papers, health
care practitioners and administrators, Oberlin students, faculty, and
alumni, and persons in the community who have a general interest in
health care and policy. The authors substantially revised their chapters
based on the comments they received at the conference as well as
through general discussion, subsequent reviews, and further refl ection
and research.
Much discussion of the issues contained in this book ordinarily
takes place among specialists in the fi eld. Some excellent technical
1
summaries have appeared, such as the Handbook of Health Economics.
The Handbook, however, is oriented to professional economists—
faculty, graduate students, and other researchers. In organizing the
conference and ultimately this book, our goal has been to address a
general audience. This book is appropriate as a supplement to a text in
health economics. It is also aimed at readers who may have a limited
background in economics, but have an interest in health policy, either
as a health care provider, public policy maker, or consumer-patient-
citizen. Each author is well aware of the other chapters, and there is
referencing across chapters. The subject matter is quite diverse, and
readers may wish to concentrate on individual chapters according to
their interests rather than read the book sequentially from cover to
cover.
This book focuses on the health care system in the United States.
Yet there is much in the book that applies to other countries as well.
Patient behavior is fairly universal. Innovation in pharmaceuticals
and medical devices is a global concern. The issue of how to best com-
pensate health care professionals is relevant, to a greater or lesser
extent, to all countries. While pay for performance is still in its infancy,
the issues pertinent to the United States also apply to other countries.
Although polls often indicate that people like their own health care
system, policy makers in few countries are entirely satisfi ed with their
Preface ix
existing system, and most are considering new ideas to improve what
they now have.
Finally, the book describes our current understanding, but also iden-
tifi es what we do not know. Substantial progress has been made in
health economics, but we have only scratched the surface. There is
indeed much to be learned.
Note
1. Culyer and Newhouse (2000).
