Physician responses to Medicare reimbursement rates

Abstract

This paper investigates how office-based physicians respond to Medicare reimbursement changes. Using variation from an Affordable Care Act policy that increased reimbursements for office-based care in four states, we use a triple difference analysis, comparing physicians with higher and lower reimbursement changes in treated states to similar physicians in untreated states. We find two mechanisms through which physicians respond. First, the reimbursement change affected integration-physicians with larger increases in office-based reimbursement were less likely to vertically integrate with hospitals and more likely to continue providing office-based care than physicians with smaller reimbursement increases. Second, we find some evidence that physicians who continued practicing in an office setting increased the volume of services provided.

Keywords: Medicare; Physician reimbursement; Vertical integration.

Figure 1:

Variation in Practice Expense GPCI and Reimbursement Rates Note: The left panel shows the practice expense GPCIs in the treated states where the 2011 GPCI floor was binding. In these states, the floor increased the GPCIs by about 10 to 15% relative to 2009. The right panel shows the actual reimbursement rates Medicare paid per RVU for office-based care—there was an approximately 15% increase.

Figure 2:

Physician Participation in Medicare Over Time Note: This figure has participation rates in various types of care for the baseline sample of physicians. The share with any claims and with office-based claims is mechanically 1 in 2008 and 2009 because that is part of the inclusion criteria. This figure shows that participation falls off with time, especially for office-based care. This appears somewhat driven by an increase in facility-only claims. Physicians are weighted equally.

Figure 3:

Practice Location and Overall Medicare Participation Note: This figure has the results from equation 2, the TD model comparing physicians based on the percent increase in reimbursement rate and treatment status of the state of the physician’s practice. The outcomes are indicated in the captions. Physicians are weighted equally. Standard errors are clustered at the physician level. The error bars show 95% confidence intervals. The mean of the outcome variable for the treated physicians in 2009 are below each figure. The dashed vertical line indicates the end of the pre-period, and the solid vertical line indicates the beginning of the post-period. All estimates are relative to 2009.

Figure 4:

Care Volume and Service Intensity Note: This figure has the results from equation 2, the TD model comparing physicians based on the percent increase in reimbursement rate and treatment status of the state of the physician’s practice. The outcomes are indicated in the captions. Physicians are weighted equally. Standard errors are clustered at the physician level. The error bars show 95% confidence intervals. All regressions are on the balanced panel of physicians always participating in the relevant care type. The mean of the outcome variable for the treated physicians in 2009 are below each figure. The dashed vertical line indicates the end of the pre-period, and the solid vertical line indicates the beginning of the post-period. All estimates are relative to 2009.

Figure 5:

Long-Run Triple-Difference Coefficient by Population Density Note: This figure has the results from equation 2, the TD model comparing physicians based on the percent increase in reimbursement rates in treatment versus control counties. It presents the long-run (i.e. 3 to 5 year) post-policy coefficient, analogous to the result from table 2. The outcomes are indicated in the captions. Physicians are weighted equally. Each point on the graph is from a separate regression that successively reduces the number of physicians restricting to those from higher population density counties—the leftmost point includes the full sample, the next the top 75%, the top 50%, the top 25%, and the top 10%. The error bars show 95% confidence intervals. Each point has the number of physicians and the population density (in people per square mile) for the cutoff in the x-axis.

Figure 6:

Practice Style, Volume, and Reimbursement Note: This figure shows an example of how physicians in the model change their provision and practice style as the reimbursement changes. Note that higher productivity physicians provide more care than low productivity ones—the discrete jump is when physicians switch from integrated to independent. Within office-based care, provision increases due to altruism and profit motives. Increasing reimbursement causes independent style physicians to provide more care and causes some integrated physicians to become independent and increase their volume discretely. Inframarginal integrated physicians are unaffected by the reimbursement change.

Figure 7:

Change in Response Mechanisms with Reimbursement Level Note: This figure shows unified framework that can explain how the primary physician response mechanism to reimbursement rate changes can shift from volume and intensity changes to vertical integration. Each of the red and blue lines show how provision of office-based care could vary with physician productivity. The lowest productivity physicians produce no office-based care since they are vertically integrated and provide only facility-based care. Intermediate physicians produce a low volume of office-based care in a standard office-based practice. High-productivity physicians provide large volumes of office-base care in an intensive office-based practice. Shifting reimbursement rates and profit margins impact where the thresholds lie. Thus, if the density of physicians remains constant (represented by the black curve), the threshold relevant to most physicians would change. Note that the red supply curve with high reimbursement has a large mass of physicians around the standard/intense threshold, while the mass of physicians is around the integration threshold for the low reimbursement blue supply curve.