Financial Incentives, Hospital Care, and Health Outcomes: Evidence from Fair Pricing Laws

Abstract

State laws that limit how much hospitals are paid by uninsured patients provide a unique opportunity to study how financial incentives of health care providers affect the care they deliver. We estimate the laws reduce payments from uninsured patients by 25-30 percent. Even though the uninsured represent a small portion of their business, hospitals respond by decreasing the amount of care delivered to these patients, without measurable effects on a broad set of quality metrics. The results show that hospitals can, and do, target care based on financial considerations, and suggest that altering provider financial incentives can generate more efficient care. (JEL G22, H75, I11, I13, I18)