Many researchers claim that decreasing physician reimbursement will decrease Medicare expenditures. Mechanically, this is true, but in reality, physicians may adjust their treatment behavior to make up for lost income. A study by Yip (1998) evaluates how change in reimbursement for coronary artery bypass graft (CABG) surgeries affected the volume of CABG surgeries physicians perform. Yip finds:
The results show evidence of a negative income effect that leads to increased volume as Medicare prices are cut, especially among the more intensive CABG procedures (CABG with more vessels). There is also a spillover of the negative income effect into the private sector, leading to increased private volume after Medicare fees are reduced. However, private-to-Medicare price ratios are not significant in determining the amount of spillover.
Additinoally, Yip finds that, conditional on having a CABG, the number of ancillary services performed per CABG increases when Medicare reimbursement declines.
These results, however, may not be generalizable for a number of reasons. First, the data only come from two states: New York and Washington. Secondly, CABG surgeries make up a large share of most thoracic surgeons’ practice volume. “On average, CABGs (irrespective of payer type) account for 41% of total practice volume, with a payer mix of 51% for Medicare, 36% for private, and 13% for health services contractors, Medicaid and self pay patients.” Thus, any change in reimbursement will significantly change thoracic surgeons’ income. When fee reductions affect a smaller share of physicians’ income, the behavioral response will likely be smaller. Finally, the behavioral response may be one of coding rather than behavior. Yip finds that the fraction of more serious CABG surgeries (i.e., CABG-3 or CABG-4) increased after the fee decrease, but this may simply be a result of upcoding rather than a true change in behavior.
Unfortunately, Yip does not measure the affect of changing CABG reimbursement schedule on substitute treatments.
- Yip, Winnie C (1998) “Physician response to Medicare fee reductions: changes in the volume of coronary artery bypass graft (CABG) surgeries in the Medicare and private sectors,” Journal of Health Economics, v17(6):675-699.