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This paper uses a patient discharge dataset from China to study whether and how medical expenses increase for those patients who have better insurance coverage. It uncovers consistent increases in total medical expenses and across each of the three broad categories of expenses (prescription drug expenses, diagnostic test expenses, and other service expenses), no improvement in the quality of care delivered. These increases in expenses can be attributed to patients, physicians, or both. The study provides evidence that physicians' financial incentives play an important role in inducing the increase in medical expenses and that physicians' workload level affects the role of their financial incentives.

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