Ulric B. and Evelyn L. Bray Social Sciences Seminar

Abstract: A committee of physicians sets prices for physician services in Medicare. We investigate whether the composition of this committee leads to prices biased in favor of its members. We find evidence of policy capture: increasing a measure of affiliation between the committee and proposers by one standard deviation increases prices by 10%. We then evaluate the effect of affiliation on the quality of information used in price-setting. Less affiliated proposals produce more hard information, measured as better survey data. However, affiliation results in prices that are more closely followed by private insurers, suggesting that affiliation may increase the total information in prices.