Medicare Payment Policies and Their Consequences

One of the common complaints about Medicare physician reimbursement was that specialists were overpaid compared to primary care doctors, on average over a third more for the same kind of visit.  In 2010 Medicare attempted to address this purported inequity by eliminating specific consultation, or referral, visit payments and increasing fees for office visits for all physicians.  The intent was to reduce overall reimbursement to specialists and increase that to primary care doctors, who were viewed as more important in terms of overall management and coordination of a patient’s care.  Research carried in the Archives of Internal Medicine examines the actual effects of the policy in the first year of its implementation, compared to the three years prior.   (Archives Article)   The intent of CMS was for the change to be budget neutral, but the research shows that the actual effect, at least initially has not been what was intended.

The research adjusted physician visits for patient status and other variables.  Endpoints included volume of visits and complexity, according to Medicare coding system.  The effect of the system in the first year was to eliminate around $18.50 in spending per beneficiary per quarter (or about $75 per year) for the old consultation coded services.  At the same time spending went up around $13.60 for new patient office visits and $15.08 for established ones, or about $114.80 per year.  It doesn’t take a rocket scientist to see that there was a fairly significant increase in overall spending for physician visits.  And here is another surprise (not), almost all of the difference was accounted for by higher prices per visit, not more visits.  In other words, doctors understand the Medicare coding system pretty well and somehow make sure their patient encounters are always quite complex, earning higher fees per visit, and Medicare had changed the fee schedule to pay more for all office visits.  Turns out doctors are pretty good at math and economics.