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

Health Economics

Volumn 7, Issue 3, 1998, Pages 199-219

  Tai Seale, Ming ^a,d   Rice, Thomas H ^b   Stearns, Sally C ^c  

^a INDIANA UNIVERSITY   (United States)

^b UNIVERSITY OF CALIFORNIA   (United States)

^c IL   (United States)

^d School of Public and Environmental Affairs   (United States)

Author keywords

Medicare payment reductions; Multiple payer; Physician volume responses; Target income

Indexed keywords

ARTICLE; COST CONTROL; FINANCIAL MANAGEMENT; HUMAN; MEDICARE; MODEL; POLICY; PRIORITY JOURNAL; REGRESSION ANALYSIS; REIMBURSEMENT; UNITED STATES;

BUDGETS; COST ALLOCATION; COST CONTROL; ECONOMICS, MEDICAL; FEES, MEDICAL; FEMALE; HUMANS; LEAST-SQUARES ANALYSIS; MALE; MEDICARE; MODELS, ECONOMETRIC; REGRESSION ANALYSIS; REIMBURSEMENT MECHANISMS; SPECIALTIES, MEDICAL; UNITED STATES;

EID: 0031981307     PISSN: 10579230     EISSN: None     Source Type: Journal    
DOI: 10.1002/(SICI)1099-1050(199805)7:3<199::AID-HEC344>3.0.CO;2-N     Document Type: Article

References (46)

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2. Physician Payment Review Commission, Annual Report to Congress, Washington, D.C., 1993.
3. Margin is defined as the difference between payment and cost of non-physician input. As physicians are not responsible for the cost of non-physician input in the hospital, we assume that the cost of non-physician input at physicians' practice office to be constant and the payment physicians receive to approximate the margin.
4. Rice, T, Stearns, S., DesHarnais, S., Pathman, D, Tai-Seale, M. and Brasure, M. Physician response to Medicare payment reductions: impacts in the public and private sectors, Attachment to Final Report, Robert Wood Johnson Foundation, Grant number 20038, 1994.
5. Rice, T., Stearns, S., DesHarnais, S., Pathman, D., Tai-Seale, M. and Brasure, M. Do physicians "cost shift"? Health Affairs 1996; 15: 215-25.
6. Christensen, S. Estimates of behavioral responses, in congressional budget office, physician payment reform under Medicare, Congressional Budget Office, (Washington, DC) Appendix B, 1990.
7. Physician Payment Review Commission, Annual Report to Congress, Washington, D.C., 1991.
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20. Tai-Seale, M. Physician responses to Medicare payment reductions with multiple payers, Doctoral Dissertation and Final Report, Agency for Health Care Policy and Research, Grant number RO3-HS08046, March 1995.
21. As defined in Equation (2), McGuire and Pauly assume that the quantity provided is determined only by physician inducement: X = X(I). A less restrictive assumption would be to acknowledge that patient demand may play a role in determining the quantity supplied as well as physician inducement.
22. LI are positive, negative, and positive, respectively. Nevertheless, this assumption of additive separability is necessary to keep the mathematics manageable.
23. ππ becomes negative infinity. The negative sign is required for the utility function to be at its maximum.
24. These two categories represent MP's simulation figures presented in the I and II quadrants, and the III and IV quadrants. These results will be described later in Table 6.
25. OBRA90 further implemented a 6% reduction for all procedures (excluding primary care) across all geographic locations.
26. CPHA is a large, nationwide abstracting service that aggregates medical records from its member hospitals. The CPHA data file contains detailed discharge data from approximately 250 hospital that have granted permission to use their discharge data for research purposes. This rich database provides both the inpatient and outpatient surgical procedure volumes from which all of the volume dependent variables are drawn. However, because of self-selection, CPHA hospitals may not be representative of all hospitals. Nevertheless, the sample of hospitals provided by CPHA for this study is a subset of the hospitals in their sample. Comparative analysis of our sample hospitals and the universe of US hospitals show that our sample represents the latter relatively well.
27. We would have preferred to have individual physician practice-level volume information. It would capture physician responses to payment changes more fully than the hospital-level information especially since the sample of hospitals in our study does not contain the whole universe of physicians' practice. However, the lack of available data prohibited us from obtaining individual physician-level information for both Medicare and private services in the nation.
28. The actual number of hospitals included in the multivariate analysis for each specialty is listed in Table 5.
29. Allowed charge is the amount paid by Medicare to physicians. Under the customary, prevailing and reasonable cost (CPR) payment system, the allowed charge is the lowest of three factors: (1) the actual price or billed charge for a particular service; (2) physician's customary (or median) charge for that procedure; or (3) the prevailing (or 75th percentile) of similar physicians' customary charges for that procedure. Under the Medicare fee schedule (MFS), the allowed charge is based on resource use.
30. For example, as shown in Appendix A, the procedure codes are grouped by surgical specialties. The volumes of each procedure under one specialty are pooled for that specialty. To illustrate, the voiumes for knee arthroscopies, hip replacements, and carpal tunnel release are pooled for orthopedics surgery.
31. Medicare fee screen year for 1988 was from 1 April 1988 to 31 March 1989, and for 1989, from 1 April 1989 to 31 December 1990. The first of the study period is defined as the twelve months between 1 April 1988 and 31 March 1989. The second year contains the nine months between 1 April 1989 and 31 December 1990. The volume from these 9 months is multiplied by 1.33 to form the second annual observation of volume. The third and fourth years start and end as the calendar years.
32. Analysts from the Physician Payment Review Committee inform us that the quality of the prevailing charge data file is too poor to use. Alternatively, we choose to use the allowed charge as the source of Medicare payment information.
33. Hospital teaching status is measured by the ratio of medical resident to the number of filled beds. The number of filled beds is constructed by multiplying the number of total beds with occupancy rate.
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35. 2 test results are highly significant indicating that the fixed-effects model is more appropriate for this study.
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40. OP.
41. Thoracic surgery and general surgery each have 2 regression equations while the other six specialties each have four equations. Hence, the total number of regression analysis conducted is 28 (2 × 2 + 6 × 4).
42. American Medical Association. Physician marketplace statistics 1995. Chicago, IL, 1995.
43. Barry, M.J., Mulley, A.G., Fowler, F.J. and Wennberg, J.W. Watchful waiting vs. Immediate Transurethral Resection For Symptomatic Prostatism. The Journal of American Medical Association 1988; 259(20): 3010-7.
44. 2 and the price of the service. Based on this observation, excluding price for the need of simplicity is not justified.
45. McCormack, L.A. and Burge, R. Diffusion of Medicare's RBRVS and related physician payment policies. Health Care Financing Review 1994; 16(2): 159-73.
46. Eisenberg, J.M. Economics: Physicians' income and set-fee structures. The Journal of American Medical Association 1994; 271(2): 1663-6.