Using physician time and complexity to identify mispriced procedures

Abstract

Physician fees have come under increasing scrutiny as policymakers attempt to constrain Medicare outlays. Our study tests the hypothesis that relative fees can be explained in terms of the physician effort involved. Our regression results show that the majority of the variation in Medicare allowed charges can be justified in terms of the physician time involved and the complexity of the procedure. Nevertheless, some surgical procedures were identified as being "overpaid" relative to their reported time and complexity, while other services appeared "underpaid," especially visits. Our methodology provides a tool for identifying "mispriced" procedures, should Congress continue its current policy of making adjustments to individual fees.