The effect of reimbursement on medical decision making: Do physicians alter treatment in response to a managed care incentive?

The empirical literature that explores whether physicians respond to financial incentives has not definitively answered the question of whether physicians alter their treatment behavior at the margin. Previous research has not been able to distinguish that part of a physician response that uniformly alters treatment of all patients under a physician's care from that which affects some, but not all of a physician's patients. To explore physicians’ marginal responses to financial incentives while accounting for the selection of physicians into different financial arrangements where others could not, I use data from a survey of physician visits to isolate the effect that capitation, a form of reimbursement wherein physicians receive zero marginal revenue for a range of physician provided services, has on the care provided by a physician. Fixed effects regression results reveal that physicians spend less time with their capitated patients than with their non-capitated patients.