Physician customary charges and Medicare payment experience: study findings

Customary charges have had significant impacts in determining reasonable prices under the historic Medicare physician payment system. This article contains new, comprehensive information on customary charges as well as data aggregated at the physician level. These baseline data have some important policy implications, such as the study findings, that indicate that the Medicare fee schedule is likely to have significant impacts on individual physician practices. The study is based on data for medical, surgical, and consultation services for nine States.     

Medicare expenditures for physician and supplier services, 1970-88

The trend data in this article focus on Medicare expenditures and allowed charges for physician and supplier services rendered during the period from 1970 through 1988. A brief overview is presented on the provisions of the new Medicare physician payment system mandated by Congress and scheduled to be phased in starting January 1, 1992. The data provide one of the baselines that could be used for measuring and evaluating the impact of the new Medicare payment system for physician services.     

Measuring input prices for physicians: the revised Medicare Economic Index

Medicare payments for physician services under Part B were historically restrained by capping prevailing charges using the Medicare Economic Index (MEI). The MEI, an input price index for physician services that incorporates an adjustment for economywide labor productivity, has not undergone a major revision since 1975. The MEI is an important determinant of the annual volume performance standard that will be used to set aggregate increases in the revised system for paying physicians under Medicare beginning in 1992. The MEI will also be used in establishing the annual changes to the payment conversion factors under the new payment system.     

Physician services in an academic neurology department: using the resource-based relative-value scale to examine physician activities.

The inability of physician managers and decision makers to critically analyze the resource utilization of physicians has hindered a more comprehensive understanding of the role of neurologists in the patterns and organization of medical practice. This article outlines an approach for using the physician work relative value units (RVUs) in the Medicare Fee Schedule (MFS) to address this problem and profile physician clinical activities in a comparative manner. These techniques are then used to profile the physician services associated with the neurology department at a large academic hospital. All 28,048 physician services associated with a neurology department in 1995 were studied. Using billing data, physician work RVUs were assigned to each service and the results analyzed by major services, type of service, and physician workload for physician work RVUs and physician charges. For the average service, mean physician charges were $187 per service while median physician charges were $120. Mean physician work RVUs per service averaged 1.3 RVUs, and the median was 0.94 per service. Of all the services provided in the neurology department, 65 percent are visits and consultations, while medicine services (e.g., nerve conduction studies, needle electromyography, neuropsychological testing, and electroencephalogram) make up 31 percent. All the other services combined represented less than five percent of the services in the department. The top five physicians in the department account for 33 percent of all physician work RVUs in the neurology department. Using the physician work relative values in the MFS provides a unique perspective for analyzing and understanding neurologists' work activities.     

Changes in Medicare reimbursement in Colorado: impact on physicians' economic behavior.

In 1976 there was a change in Medicare reimbursement policy in the State of Colorado. This study analyzes the impact of that change on physicians' economic behavior. Through 1976, prevailing charges (one of the determinants of the level of physician reimbursement under Medicare) were computed separately within each of 10 regions of Colorado. Since then, they have been computed for the State as a whole, and thus, physicians in like specialties have had equal prevailing charges throughout the State. This change in reimbursement policy led to a relative increase in prevailing charges for physicians in small urban and nonurban areas of the State, and a relative decrease for physicians in the major urban areas. In this paper we analyze the impact of this change on several aspects of physician behavior. We found that physicians whose reimbursement rates declined as a result of the change--primarily those in the Denver/Boulder area--provided more-intensive medical services, had lower assignment rates, and charged lower prices than they would have in the absence of the change.     

Financing graduate medical education: an update and a suggestion for reform.

This article reports data pertinent to three issues in the financing of graduate medical education: sources of funds for house staff support, the financing of faculty salaries for educational activities, and reimbursement bias in favor of care provided in inpatient settings. Using data from a 1979 hospital survey, we estimate that total expenditures for house-staff stipends and fringe benefits were almost $1.6 billion. Eighty-seven percent of these funds were derived from patient care revenues. Faculty salaries for educational activities added another $376 million to the cost of graduate medical education. Teaching hospitals collected 81 percent of their charges for inpatient care, but only 72.8 percent of charges for outpatient care. However, Medicare and Medicaid reimbursed approximately the same proportion of charges in both settings. The article concludes by arguing that a unified-charge system for paying teaching hospitals would eliminate most of the issues currently associated with the financing of graduate medical education as matters of public policy.     

The production of health care services and changing hospital reimbursement. The role of hospital-medical staff relationships

The production of health care services has the unique feature that physicians do not face explicit costs for hospital inputs. This paper develops models of the production process given alternative hospital and medical staff relationships, and analyzes the impact of the change in hospital reimbursement under Medicare from a cost-based system to the Prospective Payment System (PPS). A basic theoretical result finds that the switch to PPS forces physicians to alter their input mix, changing both physician and hospital income. The effects of the introduction of PPS on hospital inputs, physician income, and hours of work are empirically examined.     

Determinants of physician assignment rates by type of service.

In this article, the determinants of physician assignment rates under the Medicare program are examined separately for medical, surgical, laboratory, and radiology services. Data for this study include copies of all Medicare claims submitted by over 1,200 Colorado general practitioners, internists, and general surgeons during the periods both before and after they experienced a substantial change in program reimbursement rates. The results indicate that there is a significant positive relationship between changes in reimbursement and changes in assignment rates for medical, laboratory, and radiology services, but the relationship for surgical service is not significant. Furthermore, for laboratory and radiology services, only the change in medical service reimbursement is significant--reimbursement rates for laboratory and radiology services are not.     

Medicare revenue in large medical groups

The aged are the heaviest users of physician services. A ageing population and escalation in medical costs have pressured Medicare budgets, which have increased fastest in Part B physician reimbursement. Policy responses include adoption of the Resource Based Relative Value Scale (RBRVS) for physician payment. This paper considers receipt of Medicare revenues by large medical groups and expectations of how groups will fare under RBRVS. In a 73-percent sample of U.S. large group practices, Medicare coverage accounted for one-fourth of clients, Medicare-related revenues for slightly more than one-fourth of revenues, suggesting a slightly higher revenue intensity for Medicare clients, but showing no evidence of truly disproportionate revenues from Medicare users. Medicare shares of revenues are explained by factors related to Medicare clientele and geriatric service provision. Overly-strict Medicare assignment policy may control costs by limiting access to needed care, rather than by limiting overpayments to physicians. Expectations as to how groups will fare under RBRVS are not found to be related to reliance on Medicare, rather to group auspices and ability to contain costs under Medicare payment. The findings are important not only to physician payment under RBRVS but also under health care reform.     

The estimated costs and savings of medical nutrition therapy: the Medicare population

OBJECTIVES: To measure the potential savings from medical nutrition therapy (MNT) and to estimate the net cost to Medicare of covering these services for Medicare enrollees. This includes developing an estimate of the cost of providing medical nutrition services to the Medicare population and estimating the savings in hospital and other spending resulting from the use of these services. DESIGN: Analysis of longitudinal data from the Group Health Cooperative of Puget Sound (Seattle, Wash) for persons aged 55 years and older who have coverage for MNT services. SUBJECTS/SETTING: Persons aged 55 years and older who had diabetes (n = 12,308), cardiovascular disease (n = 10,895), or renal disease (n = 3,328) and who were covered under the Group Health Cooperative of Puget Sound, including Medicare beneficiaries enrolled in the plan's Medicare risk contract program. Extrapolation to the US Medicare population is based on data for persons served by the Group Health Cooperative of Puget Sound. INTERVENTION: The use of MNT. MAIN OUTCOMES MEASURE: Differences in health care utilization levels of persons with diabetes, cardiovascular disease, and renal disease who do and do not receive MNT. Differences in utilization were estimated for hospital discharges per calendar quarter, physician visits per quarter, and other outpatient visits per quarter. STATISTICAL ANALYSES PERFORMED: Multivariate regression models of changes in utilization for persons after they receive MNT services. RESULTS: Our analysis showed that MNT was associated with a reduction in utilization of hospital services of 9.5% for patients with diabetes and 8.6% for patients with cardiovascular disease. Also, utilization of physician services declined by 23.5% for MNT users with diabetes and 16.9% for MNT users with cardiovascular disease. The net cost of covering MNT under Medicare is estimated to be $369.7 million over the 1998 through 2004 period. The total cost of benefits is estimated to be $2.7 billion over this period. This would be partially offset by estimated savings of $2.3 billion resulting in net costs of $369.7 million. The program would actually yield net savings after the third year of the program, which would continue through 2004 and beyond. CONCLUSION: After an initial period of implementation, coverage for MNT can result in a net reduction in health services utilization and costs for at least some populations. In the case of persons aged 55 years and older, the savings in utilization of hospital and other services will actually exceed the cost of providing the MNT benefit. These results suggest that Medicare coverage of MNT has the potential to pay for itself with savings in utilization for other services.     

Medicare fees for physician services are resource-based

Beginning January 1, 1992, Medicare has relied on a resource-based relative value scale (RBRVS) to establish physician fees. Medicare pays 80 percent of the lower of the amount a physician bills for the service or the fee schedule amount. The patient is responsible for the remaining 20 percent, as well as the annual Part B deductible of $100, plus any additional amount the physician may be allowed to bill. Rarely is the billed amount below Medicare's fee schedule amount. Adoption of the RBRVS fee schedule severed the link between the amount a physician charged for a service and the amount Medicare paid for it. RBRVS implementation required significant changes in the coding system used to document and bill physician services, particularly medical visits and consultations.     

Cost sharing, supplementary insurance, and health services utilization among the Medicare elderly.

This paper investigates the extent to which private supplementary insurance and Medicaid, which vitiate the effect of Medicare cost-sharing, encourage elderly beneficiaries to seek additional medical care. A multivariate model of health services utilization is estimated with the Tobit technique, using the 1976 Health Interview Survey. We find that either private or public supplementation induces greater use of hospital and physician services, though in amounts that vary considerably according to health status. The paper closes with observations on cost savings brought about by Medicare cost-sharing and some implications for equity among beneficiaries.     

The RBRVS and hospitals: the physician payment revolution on our doorstep

As the months count down to the scheduled Jan. 1, 1992, implementation of Medicare physician payment reform, physicians and hospital administrators are still uncertain as to precisely how the new payment rules will affect them. But when it does kick in, the Health Care Financing Administration's implementation of the resource-based relative value scale (RBRVS) is sure to transform both physician reimbursement and physician-hospital relations. Experts expect HCFA to use the RBRVS to raise reimbursement for primary care at the expense of specialty care; that could lead to tension between hospitals and specialty physicians, as those specialists pressure hospitals to help them make up for income losses. What's more, HCFA is already planning for the possibility that specialists hit by the RBRVS will raise their Medicare volume to recoup reimbursement declines. Just how successfully an individual hospital weathers the coming payment revolution will depend on its mix of specialties and its medical staff relationships. It's also clear, according to experts, that RBRVS implementation will create a strong incentive for hospitals to enter joint ventures or other arrangements with physicians for outpatient services.     

Racial differences in the elderly's use of medical procedures and diagnostic tests.

OBJECTIVES. This study sought to examine racial differences in the use of medical procedures and diagnostic tests by elderly Americans. METHODS. We used 1986 physician claims data for a 5% national sample of Medicare enrollees aged 65 years and older to study 32 procedures and tests. For each service, we calculated the age- and sex-adjusted rate of use by race and the corresponding White-Black relative risk. RESULTS. Whites were more likely than Blacks to receive 23 services, and for many of these services, the differences in use were substantial. In contrast, Blacks were more likely than Whites to receive seven services. Whites had a particular advantage in access to higher-technology or newer services. Racial differences in use persisted among elders who had Medicaid in addition to Medicare coverage and increased among rural elders. CONCLUSIONS. There are pervasive racial differences in the use of medical services by elderly Americans that cannot be explained by differences in the prevalence of specific clinical conditions. Financial barriers to care do not fully account for these findings. Race may exacerbate the impact of other barriers to access.     

Racial differences in health care use among medicare only and dual eligibles

It has been an important financial issue in the U.S. Medicare expenditures that health care expenses of Medicaid-Medicare dual eligibles (MMDE) are much higher than those of Medicare only beneficiaries (MOB). This paper compares health care use and health status of MMDEs and MOBs who are either Afro-American or white recipients. Using total health care use information from the Medical Expenditure Panel Survey (MEPS) 2000, we find that the proportion of dual eligibles with chronic health conditions is higher by 4% than that of the Medicare only beneficiaries and that dual eligibles make more frequent uses of various health care services. The number of office-based physician visits and outpatient physician visits are higher for Afro-American dual eligibles than white dual eligibles. This finding seems to be contributed to by relatively high medical needs among dual eligibles. Higher utilization of agency-related home health services among Afro-American dual eligibles than among white dual eligibles is considered as a consequence of different ethnicity-specific responses to insurance coverage.     

Impact of drug coverage on medical expenditures among the elderly

Our study compares expenditures for Medicare covered medical services among enrollees in three State pharmacy assistance programs with spending among low-income residents eligible or near-eligible for, but not enrolled in such State-sponsored programs after controlling for between-group differences in demographic, socioeconomic, health status, and insurance status characteristics. We estimate a two-part model in total and by type of service (inpatient, outpatient, and professional) and chronic condition (hypertension, heart disease, and arthritis). We find that drug coverage has no discernible effect on the use and cost of inpatient services, but is associated with a statistically significant increase in Medicare spending for physician services.     

Impact of drug coverage on medical expenditures among the elderly

Our study compares expenditures for Medicare covered medical services among enrollees in three State pharmacy assistance programs with spending among low-income residents eligible or near-eligible for, but not enrolled in such State-sponsored programs after controlling for between-group differences in demographic, socioeconomic, health status, and insurance status characteristics. We estimate a two-part model in total and by type of service (inpatient, outpatient, and professional) and chronic condition (hypertension, heart disease, and arthritis). We find that drug coverage has no discernible effect on the use and cost of inpatient services, but is associated with a statistically significant increase in Medicare spending for physician services.     

Physician cost experience under private health insurance programs

Little information is available on private payer claims cost experience for specific categories of health care. A study was conducted in which physician-claims cost experience and trends among 15 Blue Cross and Blue Shield Plans were compared. Between 1986 and 1988, physician claims cost per covered person increased at an average annual rate of 17 percent, approximately 6 percentage points higher than for Medicare. Annual charges were highest for laboratory (24 percent), radiology (19 percent), and medical care (18 percent) services. Utilization trends were also examined in the study. The number of radiology imaging procedures performed increased 48 percent between 1986 and 1988, and the number of hospital visits declined by 6 percent.     

Medicare graduate medical education funding and rural hospitals

To assess the importance of medical residents to rural hospitals, and to predict the possible effect of reductions in Medicare graduate medical education (GME) payments, data from Medicare hospital cost reports and from a telephone survey of rural hospitals with residency programs are analyzed. In prospective payment system year 11, 70 rural hospitals received more than $80 million in Medicare GME payments. The presence of rural training programs enhanced staff physician recruitment and retention and led to increased numbers of physicians settling in communities surrounding the facilities. Many survey respondents felt that elimination of GME funds would results in downsizing or outright elimination of their training programs. The results support the contention that rural training programs are important to hospitals and their surrounding communities and provide an essential component of the physician supply pipeline to rural areas.