Medical Reimbursements and Patient Selection by Physicians: A Capital-Theoretic Approach

In this paper we use a simple model of patient selection to examine how expected declines in reimbursement rates (including scheduled cuts in Medicare reimbursements) affect decisions made by physicians. Accepting a new patient generates revenue for the physician both immediately and over time, but constrains the physician’s flexibility in accepting new patients in the future. The effects of the constraint depend, in part, on the turnover in patient capital. Findings imply that physicians who have longer-lasting relationships with their patients face higher costs than physicians who have only short-term relationships. For example, primary-care physicians are more likely to close their practices to new Medicare and Medicaid patients in response to expected reimbursement cuts in the future than are providers in consultative specialties. Copyright International Atlantic Economic Society 2009