In a major shift away from direct public provision, governments around the world are expanding public insurance programs that contract the private sector to deliver health services at pre-specified reimbursement rates. These rates are a key policy lever to shape provider incentives, but there is little evidence on their effects in lower-income contexts with limited regulatory capacity. Using over 1.6 million insurance claims and 20,000 patient surveys, and exploiting a policy-induced natural experiment, this paper provides evidence on private hospital responses to reimbursement rate changes under government health insurance in India. It shows that: 1) Private hospitals engage in coding manipulation to increase revenues at government expense. Manipulation is highly responsive to changes in the relative reimbursement rates of similar services. 2) Rate increases also induce an increase in service volumes. 3) Hospitals charge patients for care that should be free under program rules. Raising rates reduces these charges significantly, but hospitals capture about half of the increase. Pass-through is driven entirely by less concentrated markets, suggesting that competition limits hospital capture of public subsidies. There is no evidence of changes in care quality or patient composition. These findings highlight the critical role of prices and market structure when contracting the private sector for delivery of social services
