Two-Sided Matching in Physician-Insurer Networks: Evidence from Medicare Advantage

Abstract

Many health insurance plans in the U.S. restrict enrollees to choose from a set of providers the insurer has contracted with. These provider networks are formed via bilateral bargaining between insurers and providers. Provider networks are an important tool for product differentiation and cost containment for insurers and also put real restrictions on consumer's choice of providers. In this paper, I analyze matching between insurers offering Medicare Advantage Plans and physicians, using a unique data set consisting of all insurer-physician links in several counties. I estimate parameters of a two-sided, many-to-many matching model which describes formation of provider networks, using the Maximum Score estimator of Fox (2010). This method uses implications of a pairwise stability condition to estimate a joint surplus function which depends on insurer-physician links. The surplus function accounts for the role of physician and insurer characteristics in determining their match values, and also for interactions between physicians linked to the same insurer, whose services may be complements or substitutes. The results indicate that insurers prefer on the margin to link with physicians who increase the specialty concentration of their network and who are located near other physicians in the network. Physicians are negatively affected by having a broader referral network, as defined by having a larger set of physicians with whom they have insurer links in common. These forces could lead to networks being undesirably narrow, excluding specialties, locations and specific physicians that would be valuable for some plan enrollees. Finally, compared with regional insurers, nationally active insurers have a larger number of exclusive links with physicians, and match with more physicians with U.S. medical degrees. This result suggests positive assortative matching.