Price Regulation, Technology and Provider Redistribution: Insights from Parity Laws (2410.22616v2)

Abstract: Do price regulations lead to inefficiencies and trade loss? The answer depends on the type of regulation, monetary and non-monetary factors influencing demand, technological factors affecting supply elasticities, difference between pre-regulation and expected post-regulation prices, and geographical area. State-level variations in telehealth parity laws provide a unique opportunity to study the effects of Price Controls and Cost Controls on healthcare service quantity, proxied by physician count, across metro and non-metro areas, with broadband as a technological mediator. At the micro level, Price Controls distort the input mix, causing production inefficiency and rotating the supply curve. Cost Controls change the consumption mix, causing consumption inefficiency and rotating the demand curve. This results in equilibrium quantity shifts causing allocative inefficiency in healthcare provision, signified by physician redistribution at the macro level. The micro-founded non-price competition models predicts shifts from unregulated to regulated equilibrium quantities under various combinations of Price Control and Cost Control types. Empirical analysis supports these predictions, showing that a Price Ceiling or Price Floor positively affects physician count in metro areas but negatively in non-metro areas. Conversely, Cost Parity has a negative effect in metro areas, while a Cost Ceiling positively impacts physician count in both regions. When examining combinations of different types of Price and Cost Controls, Cost Parity tends to dominate with a net negative effect, whereas a Cost Ceiling amplifies the positive effect of a Price Ceiling. The findings challenge the conventional narratives and underscore the role of regional disparities and technology in shaping policy outcomes.