Medicare Fees and Volume of Physicians' Services

Winter 2009/10
Inquiry, Vol. 46, No. 4
Jack Hadley, James D. Reschovsky, Catherine Corey, Stephen Zuckerman

While Medicare physician fees have remained relatively flat in recent years—and actually have declined when considering inflation—the volume of services to Medicare beneficiaries has grown. To many, this implies a "volume offset," —physicians respond to fee cuts by increasing services. Examining eight services provided to Medicare beneficiaries (different types of visits and two cardiac diagnostic tests), this study found no evidence of volume-offset behavior by physicians. Rather, lower Medicare fees were associated with lower volumes for all eight services, although the magnitude of the relationship varied across services. While the researchers caution that responses could differ for other services, the results suggest that uniform Medicare fee updates for all services distort physician treatment patterns. The authors argue that instead, Medicare might vary fee changes to influence volume for certain services—for instance, pay higher fees for services considered beneficial and undersupplied (such as primary care visits) and lower fees for less effective and oversupplied services (such as x-rays for uncomplicated lower back pain).

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