Physician adjustments to lags in Medicare reimbursement rates

Ross Alan Winegar, Purdue University

Abstract

This paper investigates changes in physician behavior given changes in procedures' profit margins. Unique methods are used to test for potential cross-substitution between procedures, and spillover effects by "upcoding" office visits. The observation-level Medicare data in the Carrier 2007 SAF was combined with the procedure specific cost data in the 2006 and 2009 Direct Practice Expense Inputs (DPEI) Summary Files to estimate whether two procedure's relative profitability affects the relative proportion that physicians perform them. A theoretical model is developed offering further insight into physician induced demand, and then components were estimated in an empirical analysis. Logit regressions estimate changes in direct utilization rates between mutually exclusive procedures. During calendar year 2007, Medicare's physician reimbursements were flat for all procedures considered, so any change in a procedure's relative profitability must have come from changes in relative cost. The DPEI Summary Files for 2006 and 2009 provide data on some components of procedures' costs, and are used to identify changes in cost between the years 2005 and 2008. Since these years span 2007, then any cost changes following trends over this time period should affect the relative profitability of procedures over the year 2007. Also a potential spillover from cost changes is examined. Physicians experiencing large cost changes across procedures in their practice may look for alternative means to make up for lost revenue, such as inflated billing for office visits. A physician's reimbursement for an office visit is directly tied to their self-reported effort level, so inflated reporting ("upcoding") could generate additional income.

Degree

Ph.D.

Advisors

Siebert, Purdue University.

Subject Area

Economics|Labor economics|Public policy|Health care management

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