Medicare fees and physicians’ medicare service volume: Beneficiaries treated and services per beneficiary

Using merged physician survey and Medicare claims data, this study analyzes how fee levels, market factors, and financial incentives affect physicians’ fee-for-service Medicare service volume. We find that Medicare fees are positively related to both the number of beneficiaries treated (η = 0.12 to 0.61) and service intensity (η = 1.04–1.71). Physicians with apparent incentives to induce demand appear to manipulate the mix of services provided in order to increase the effective Medicare fee. Finally, several market factors appear to influence the quantity of Medicare services physicians provide. Results highlight limitations of the present system for compensating physicians in Medicare’s fee-for-service program. JEL Classification I18     

Geographic variation in relative fees under Medicare.

Little is known about geographic variation in Medicare's relative fee structure. Using 1986 Part B Medicare claims data, ratios among physician fees for surgical procedures belonging to small families of closely related procedures, excluding outliers, were found to vary up to twofold. Under Medicare's current system of physician payment, physicians in different areas face different financial incentives for performing one procedure in preference to possible alternatives. Changes in incentives under a resource-based Medicare fee schedule will be more pervasive than previously recognized.     

Payer-provider collaboration in accountable care reduced use and improved quality in maine medicare advantage plan

Patient-centered, accountable care has garnered increased attention with the passage of the Affordable Care Act and new Medicare regulations. This case study examines a care model jointly developed by a provider and a payer that approximates an accountable care organization for a Medicare Advantage population. The collaboration between Aetna and NovaHealth, an independent physician association based in Portland, Maine, focused on shared data, financial incentives, and care management to improve health outcomes for approximately 750 Medicare Advantage members. The patient population in the pilot program had 50?percent fewer hospital days per 1,000 patients, 45?percent fewer admissions, and 56?percent fewer readmissions than statewide unmanaged Medicare populations. NovaHealth's total per member per month costs across all cost categories for its Aetna Medicare Advantage members were 16.5?percent to 33?percent lower than costs for members not in this provider organization. Clinical quality metrics for diabetes, ischemic vascular disease, annual office visits, and postdischarge follow-up for patients in the program were consistently high. The experience of developing and implementing this collaborative care model suggests that several components are key, including robust data sharing and information systems that support it, analytical support, care management and coordination, and joint strategic planning with close provider-payer collaboration.     

RBRVS apprehension may be an administrative red herring

"The RBRVS has been accepted as a rational and systematic approach to determining fees for physician services. By adopting this method, the federal government has corrected the distorted incentive structure for physician payment, and has provided itself and others another tool with which to build an improved health-care system." The words of RBRVS architect and Harvard School of Public Health economist Dr. William C. Hsiao are receiving mixed reviews from health-care administrators and strategic planning consultants. While RBRVS is gaining some respect among health-care practitioners for lowering the cost of Medicare services, an unexpected ramification is developing. Many physicians are avoiding the administrative paperwork of another federal medical program by joining physician-hospital alliances where hospitals are luring physician fidelity with administrative incentives.     

Medicare and Medicaid physician payment incentives.

The incentives in the Medicare and Medicaid physician payment systems and their effects on six interrelated aspects of health care costs and beneficiary access to care were analyzed. Research results and data presented indicate that Medicare and Medicaid physician payment incentives are inconsistent with current public policy goals of (1) containing inflation in fees and expenditures, (2) encouraging physician participation in public programs, (3) improving the geographic and specialty distributions of physicians, (4) encouraging primary care instead of surgery, and also outpatient rather than inpatient treatment.     

Medicare cost controls and program compliance: the rationale of physician claims edits

This article attempts to demystify and create a context for the enactment of several Medicare cost control and compliance systems for physician reimbursement. The focus is on claims "edits" and Medicare compliance. Portions of Medicare, including health care provider reimbursement, remain fee-for-service programs that can be easily defrauded. To protect the Trust, the Centers for Medicare and Medicaid Services (CMS) has taken a multi-pronged approach, using program administration, enforcement, and rules-based claims editing systems. The Evaluation and Management codes, the Correct Coding Initiative (CCI), and medical necessity rules are claims edits that affect procedure codes. The Medicare program has a complicated system of billing procedures and an apparatus to enforce them. A solid compliance plan must incorporate proper claims editing, because consistent incorrect Medicare billing can be considered abuse. Many resources are available to aid physicians, including computerized tools, new CMS initiatives, and Internet materials.     

Medicare calibration of the clinically detailed risk information system for cost

The clinically detailed risk information system for cost (CD-RISC) contains definitions for several hundred severity-adjusted conditions that can be used to predict future health care costs. We develop a prospective Medicare CD-RISC model using a 5-percent sample of Medicare beneficiaries and data that contain 1996 diagnostic information and 1997 annualized costs. The CD-RISC model has a hierarchical structure that implies that only the most expensive condition-severity variable within a body system affects payments. This minimizes incentives to game the system by entering multiple related codes for the same condition. The R2 for the CD-RISC model is 11 percent.     

Rewarding excellence and efficiency in Medicare payments

Medicare could become an innovative leader in using financial incentives to reward health care providers for providing excellent and efficient care throughout a patient's illness. This article examines the variations in cost and quality in the provision of episodes of care and describes how a pay-for-performance payment system could be designed to narrow those variations and serve as a transition to a new Medicare payment policy that would align physicians' incentives with improvements in both quality and efficiency. In particular, Medicare could stimulate greater efficiency by developing new payment methods that are neither pure fee-for-service nor pure capitation, beginning with a pay-for-performance payment system that rewards quality and efficiency and moving to a blended fee-for-service and case-rate system.     

Medicare breast surgery fees and treatment received by older women with localized breast cancer

OBJECTIVE: To determine whether area-level Medicare physician fees for mastectomy and breast conserving surgery were associated with treatment received by Medicare beneficiaries with localized breast cancer and to compare these results with an earlier analysis conducted using small areas (three-digit zip codes) as the unit of observation. DATA SOURCE: Medicare claims and physician survey data for a national sample of elderly (aged 67 or older) Medicare beneficiaries with localized breast cancer treated in 1994 (unweighted n = 1,787). STUDY DESIGN: Multinomial logistic regression analysis was used to estimate a model of treatment received as a function of Medicare fees, controlling for other area economic factors, patient demographic and clinical characteristics, physician experience, and region. PRINCIPAL FINDINGS: In 1994, average Medicare fees (adjusted for the effects of modifiers and procedure mix) for mastectomy (MST) and breast conserving surgery (BCS) were 904 dollars and 305 dollars, respectively. Holding other fees and factors fixed, a 10 percent increase in the BCS fee increased the odds of breast conserving surgery with radiation therapy relative to mastectomy to 1.34 (p = 0.02), while a 10 percent decrease in the MST fee increased the odds of breast conserving surgery with radiation therapy to 1.86 (p < 0.01). CONCLUSIONS: Among older women with localized breast cancer, financial incentives appear to influence the use of mastectomy and breast conserving surgery with radiation therapy. This finding is consistent with the hypothesis that physicians are responsive to financial incentives when the alternative procedures have clinically equivalent outcomes and the patient's clinical condition does not dominate the treatment choice. We also find that the fee effects derived from this analysis of individual data with more precise measurement of both diagnosis and treatment are qualitatively similar to the results of the small-area analysis. This suggests that the earlier study was not severely affected by ecological bias or other data limitations inherent in Medicare claims data.     

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.     

Volume responses to medicare payment reductions with multiple payers: a test of the McGuire–Pauly model

The effects of changing financial incentives on physician's practice behaviour have long been of interest to researchers and policy makers. We test a model of physician volume response within the context of multiple payers developed by Thomas McGuire and Mark Pauly. A panel data set covering discharges from about 200 hospitals in the US over 45 months is used to carry out the empirical investigation. A fixed-effect model with generalized least squares and instrumental variable specifications is used to compute empirical evidence of volume responses from eight specialties experiencing varying degrees of Medicare payment reductions following the implementation of Omnibus Budget Reconciliation Acts of 1989 and 1990. The empirical findings are compared with McGuire and Pauly's simulated predictions. We note that in examining physician responses to Medicare payment reductions in the context of a multi-payer environment, it becomes evident that only fixing one payer's reimbursement policy is at best a partial solution to cost containment. We echo observations made by other analysts that physician responses to payment changes can be quite complex. Physicians do not all respond to payment reduction in the same way. © 1998 John Wiley & Sons, Ltd.     

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.     

Bringing managed care incentives to Medicare's fee-for-service sector

The Health Care Financing Administration (HCFA) could work with eligible physician organizations to generate savings in total reimbursements for their Medicare patients. Medicare would continue to reimburse all providers according to standard payment policies and mechanisms, and beneficiaries would retain the freedom to choose providers. However, implementation of new financial incentives, based on meeting targets called Group-Specific Volume Performance Standards (GVPS), would encourage cost-effective service delivery patterns. HCFA could use new and existing data systems to monitor access, utilization patterns, cost outcomes and quality of care. In short, HCFA could manage providers, who, in turn, would manage their patients' care.     

Medicare physicians' services: the composition of spending and assignment rates.

Medicare spending for physicians' services, the second largest component of the Medicare program (24.5 percent), represents 1.3 percent of the Federal budget, 0.41 percent of the gross national product, and 19.4 percent of national spending for physicians' services. Interest in reforming the Medicare physician payment system is growing. Detailed information on patterns of Medicare spending for physicians' services and assignment rates according to physician specialty, place of service, type of service, and procedure are presented here.     

Use and cost of skilled nursing facility services under Medicare, 1987.

The data in this article are focused on the use, covered charges, and Medicare program payments for skilled nursing services during calendar year 1987. Data for the period 1971-87 are included to show trends in the use and cost of skilled nursing facility services under the Medicare program. The impact of the Medicare prospective payment system on skilled nursing facility use is also discussed.     

Unhealthy trends: the future of physician services

In this paper we review current trends in payment systems, work settings, favored services, and accountability mechanisms that characterize physician practice. Current trends are pointing to higher spending, more tiering of access to care by ability to pay, and a greater role for larger practices that include both primary care and specialist physicians. Medicare's purchasing role is policymakers' most powerful lever to alter negative trends. Making fee-for-service payment more accurately reflect cost structures could immediately address some of these issues. Medicare can lead longer-term efforts to incorporate more per episode and capitated elements into the payment system, revamping incentives for physicians.     

Study indicates mixed cost containment-efficiency results from PPS implementation

The prospective Payment System (PPS) has put the nation's hospital industry at extreme risk of financial failure and closure. With the PPS in effect, hospital incentives changed from Medicare reimbursement maximizers to the development of programs and the implementation of organization changes which would control cost and encourage efficiency. Specifically, the Federal Government wanted to reduce or at least maintain at a constant level their cost for the Medicare program.     

Issues regarding health plan payments under Medicare and recommendations for reform.

The failures of the market for current Medicare health plans include poor information and price distortions and can be attributed to government policy. Reforms that could improve its structure are annual open enrollment periods, premium rebates from health management organizations (HMOs) to members, and termination of the federal government's subsidy of Medicare supplementary insurance. However, the price for a basic Medicare benefits package would still be distorted because Medicare bases its contribution on the cost of a comparable package in the fee-for-service (FFS) sector rather than on the cost of the most efficient plan available to beneficiaries in each market area. The present Medicare HMO program almost certainly increases total Medicare costs and actually discourages HMO growth by shielding beneficiaries from the true price difference between basic benefits in the HMO and FFS sectors. Lacking payment reforms, the Medicare HMO program should be terminated.     

Medicare interim payment system's impact on Medicare home health utilization

The Medicare home health interim payment system (IPS) implemented in fiscal year 1998 provided very strong incentives for home health agencies (HHAs) to reduce the number of visits provided to each Medicare user and to avoid those beneficiaries whose Medicare plan of care was likely to exceed the average beneficiary cost limit. We analyzed multiple years of data from the Medicare Current Beneficiary Survey (MCBS) to examine how the IPS affected subgroups of the Medicare population by health and socioeconomic characteristics. We found that the IPS strongly reduced overall utilization, but that few subgroups were disproportionately affected.     

Medicare's Payment Strategy For End-Stage Renal Disease Now Embraces Bundled Payment And Pay-For-Performance To Cut Costs

Since 1973 Medicare has provided health insurance coverage to all people who have been diagnosed with end-stage renal disease, or kidney failure. In this article we trace the history of payment policies in Medicare's dialysis program from 1973 to 2011, while also providing some insight into the rationale for changes made over time. Initially, Medicare adopted a fee-for-service payment policy for dialysis care, using the same reimbursement standards employed in the broader Medicare program. However, driven by rapid spending growth in this population, the dialysis program has implemented innovative payment reforms, such as prospective bundled payments and pay-for-performance incentives. It is uncertain whether these strategies can stem the increase in the total cost of dialysis to Medicare, or whether they can do so without adversely affecting the quality of care. Future research on the intended and unintended consequences of payment reform will be critical.