A Tale of Two Bounties: The Impact of Competing Fees on Physician Behavior

Abstract

This study examines how the volume of privately insured services provided in hospital inpatient and outpatient departments changes in response to reductions in Medicare physician payments. We hypothesize that physicians consider relative payment rates when choosing which patients to treat in their practices. When Medicare reduces its payments for surgical procedures, as it did in the late 1980s, physicians are predicted to treat more privately insured patients because they become more lucrative. We use data from 182 hospitals for seventeen major procedures groups, covering a forty-five-month period between 1988 and 1991 that encom passes a twenty-four-month period before the reduction in Medicare fees and twenty-one months after the reduction. Our findings are consistent with the predictions for a number of procedure groups, but not for all of them. One implication of the findings is that societal savings from Medicare fee reductions are overstated if one does not also consider spillover effects in the private insurance market.

Effects of increased payment for ventilation tube insertion on decision making for paediatric otitis media with effusion

“…Physicians may select patients subjectively, with bias towards those who are more lucrative [11]. Payment by fee‐for‐service may encourage surgeons to do more elective procedures than they would under the payment system of capitation [12]. The NHI in Taiwan nearly doubled the physician fee for VTI when it raised the payment from $61.5 to $117.6 in July 2004, even though VTI is an easy, fast, low‐risk procedure for otolaryngologists.…”

Hospital volume responses to Medicare's Outpatient Prospective Payment System: Evidence from Florida

“…Several studies document evidence of these spillover effects in response to fee cuts for so-called "overpriced" or "overvalued" Medicare procedures targeted by Congress in the Omnibus Budget Reconciliation Acts of 1987. Rice et al (1999) shows that fee reductions increased the volume of services paid by private insurers and Yip (1998) finds that thoracic surgeons responded to a large fee reduction by increasing the volumes of both Medicare and private pay procedures. Given the important roles physicians play in patient care, regardless of the care delivery setting, the demand inducement model offers a useful lense for examining the effects of other Medicare reimbursements changes, including the hospital reimbursement rate changes introduced by OPPS.…”

Custom-Made Healthcare – An Experimental Investigation

“…Yip (1998) reports surgeons to increase the quantity of open-heart procedures provided to Medicare and non-Medicare patients in response to a considerable Medicare fee cut. Rice et al (1999) and Tai-Seale et al (1999) find evidence of a spillover effect of Medicare fee cuts into the market for non-Medicare services, noting that non-Medicare quantities increase to some extent as Medicare fees decrease. Analyzing outpatient hospital care, He & Mellor (2012) report that physicians respond to Medicare fee cuts by providing fewer services to Medicare and more services to non-Medicare patients.…”