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Taiwan’s National Health Insurance (NHI) has adopted a top-up design for cardiac stents since 2006: the NHI covers the full cost of baseline treatment (bare-metal stents, BMS), but if a patient prefers more expensive treatments (drug-eluting stents, DES), she must pay for the incremental cost out of pocket. Such a “top-up” design has been advocated as a good model to provide essential care for the mass population while keeping health spending under control. To further reduce health spending, the NHI cut the reimbursement rate of BMS (to hospitals) by 26% in January 2009. We study how hospitals responded to this reimbursement reduction and how such response affects the actual payment from the NHI and patients. Based on individual patient records and hospital-reported stent prices (2007-2010), we find no evidence of hospitals raising the price of drug-eluting stents from patients. However, on average hospitals increase the number of stents per admission by 0.14 in 2009, and most of the increases are for BMS. As a result, the rate cut induces 18% more BMS usage and providers recoup up to 30% of the revenue loss in 2009-2010 after the NHI rate cut. This suggests that the rate cut is still effective in reducing NHI expenditure on cardiac stents, despite hospital’s moral hazard adjustment.
Keyword: top-up design, health care cost, cardiac stent, moral hazard JEL code: G22, I11, I18