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Journal/Book Title/Conference

Economics Research Institute Study Paper






Utah State University Department of Economics

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This paper attempts to evaluate the underlying the economic incentives for different health care pricing schemes currently utilized in U.S. and Canadian health care. The paper motivates the idea that medical providers have strong economic incentives to introduce new technology and undertake invasive surgical procedures as often as possible, as opposed to treating patients conservatively.

The specific case of orthopedics in the state of Utah is studied. A supply side model of physician behavior is used to study the evolution of reimbursement levels from payers per surgical procedure. The results suggest that physicians have acted strategically by presenting more procedures to payers as the reimbursement level per procedure have dropped over time.

Also, traditional health insurance has been unsuccessful in limiting the growth in health care costs while capitation may lead to the undertreatment of patients who may require invasive surgical care. The authors advance the idea that invasive surgical care. The authors advance the idea that invasive surgical care can be more efficiently organized into episodes of care by controlling health care expenditure levels while providing adequate surgical care.