Common Practice: Spillovers from Medicare on Private Health Care

Efforts to raise US health-care productivity have proceeded slowly, potentially due to the fragmentation of payment across insurers. Each insurer's efforts to improve care could influence how doc-tors practice for other insurers, leading to unvalued externalities. We study a randomized letter intervention by Medicare to cur-tail overuse of antipsychotics. The letters did not mention private insurance but reduced prescribing to these patients by 12 percent, much like the 17 percent effect in Medicare. We cannot reject one -for-one spillovers, suggesting that physicians use similar med-ical practice styles across insurers. Our findings establish that insurers can affect health care well outside their direct purview. (JEL D24, G22, I11, I13, I18)