Paper 1 : Optimal Payment Levels for Reference-Dependent Physicians

Abstract: Prospective payment policies, which set a fixed payment for a bundle of services regardless of providers’ actual costs, are widely used across sectors. However, when the fixed payment level deviates from providers’ familiar, preexisting revenue, the introduction of such policies may induce behavioral distortions if providers exhibit reference-dependent preferences. This study investigates the optimal payment level under this policy by leveraging the healthcare context. We develop a collective model of medical decision-making and incorporate physicians’ reference-dependent preferences into this collective framework. Our structural estimates reveal that both patients and physicians play active roles in medical decisions, with physicians placing 3.5 times more weight on perceived losses than gains. The fixed payment level, by shaping physicians’ perceptions of gains and losses, crucially affects both treatment and welfare outcomes. Through welfare analysis, we derive the optimal payment level that reduces healthcare expense while maintaining patient health benefits.

Speaker:
Wei Yan is an Assistant Professor at the School of Finance, Renmin University of China. She received her Ph.D. in Economics from the National University of Singapore. Her research in health economics studies the interactions among healthcare providers, patients, and insurers, with a focus on understanding how differing incentive structures and information asymmetries between these key players affect their decisions and generate inefficiencies in healthcare markets.

Paper 2: Fear and Risk Perception: Understanding Physicians' Dynamic Responses to Malpractice Lawsuits

Abstract: Using linked health insurance claims and malpractice lawsuit records from a Chinese city, we study how lawsuits shape physicians’ behavior. After lawsuits, physicians practice more defensively—rejecting high-risk patients, reducing surgeries, and increasing diagnostic tests and traditional Chinese medicine—without improving outcomes. The effects spread to unaffected departments and fade in eight weeks. Evidence suggests psychological rather than financial drivers: similar responses regardless of hospitals’ prior exposure or litigation outcomes; reactions to patient deaths vary with the recency of the lawsuit; and responses intensify after violent incidents against physicians. Overall, lawsuits trigger short-lived, fear-driven defensive medicine.

Speaker: 
Jia Xiang is Assistant Professor of Business Economics and Public Policy at the Kelley School of Business, Indiana University. She received her Ph.D. in Economics from Penn State in 2020. She was a Post-Doctoral Research Fellow at Harvard School of Public Health from 2020 to 2021. Her areas of expertise include Industrial Organization, Health Economics, and Applied Microeconomics. Her work has been published in The Rand Journal of Economics.