The Impact of Preferred Lab Networks on Choices, Spending, and Prices
This paper studies the impact of an inventive preferred-provider plan design on choices, spending, and prices for lab services. Under this design, patients incur zero out-of-pocket costs at preferred providers, but face a deductible at non-preferred providers. Using a triple differences empirical framework, I estimate that this plan structure is associated with a 10 percentage point increase in the use of preferred providers, who generally have low prices. This paper also provides new evidence on how tiering can influence negotiated prices. Overall, prices decline after the introduction of the network, especially among preferred providers. Most notably, providers that renegotiate lower rates to obtain preferred status cut prices by 64% on average. Combing both the steering and price effects, I find that per-lab spending falls by 28% after the rollout of the tiered design, with slightly over half of this effect due to steering and the remainder due to price reductions