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Implications of Physician Ethics, Billing Norms, and Service Cost Structures for Medicare's Fee Schedule

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  • Clemens, Jeffrey

Abstract

Medicare Part B pays physicians through a fixed fee schedule designed loosely as a system of average-cost reimbursement. This paper examines four difficulties faced by systems of this kind. First, Medicare's payment model would be improved if it accounted for the medical value and cost-effectiveness of treatments in addition to their input costs. Second, uniformly applied fee schedules are inefficient when physicians vary in their approaches to medical practice. Allowing Medicare to account for regional differences in practice styles, which are substantial, may have significant benefits. Third, differences in physicians' billing practices have similar, largely unstudied, implications. Proficient billers receive relatively high payments for incremental service provision, resulting in unintended variation in effective wages. Fourth, differences in services' cost structures point to an additional weakness in Medicare Part B's payment model. Average-cost reimbursement implies larger profit margins for capital-intensive services than for labor-intensive services. As implemented, Medicare's fee schedule has encouraged significant expansions in the adoption, utilization, and development of capital-intensive tests and treatments.

Suggested Citation

  • Clemens, Jeffrey, 2014. "Implications of Physician Ethics, Billing Norms, and Service Cost Structures for Medicare's Fee Schedule," MPRA Paper 73392, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:73392
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    File URL: https://mpra.ub.uni-muenchen.de/73392/1/MPRA_paper_73392.pdf
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    References listed on IDEAS

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    1. Eric Budish & Benjamin Roin & Heidi Williams, 2013. "Do fixed patent terms distort innovation? Evidence from cancer clinical trials," Discussion Papers 13-001, Stanford Institute for Economic Policy Research.
    2. Daron Acemoglu & Amy Finkelstein, 2008. "Input and Technology Choices in Regulated Industries: Evidence from the Health Care Sector," Journal of Political Economy, University of Chicago Press, vol. 116(5), pages 837-880, October.
    3. Godager, Geir & Wiesen, Daniel, 2013. "Profit or patients’ health benefit? Exploring the heterogeneity in physician altruism," Journal of Health Economics, Elsevier, vol. 32(6), pages 1105-1116.
    4. Jeffrey Clemens & Joshua D. Gottlieb, 2014. "Do Physicians' Financial Incentives Affect Medical Treatment and Patient Health?," American Economic Review, American Economic Association, vol. 104(4), pages 1320-1349, April.
    5. Leemore S. Dafny, 2005. "How Do Hospitals Respond to Price Changes?," American Economic Review, American Economic Association, vol. 95(5), pages 1525-1547, December.
    6. Jeffrey Clemens, 2012. "The Effect of U.S. Health Insurance Expansions on Medical Innovation," Discussion Papers 11-016, Stanford Institute for Economic Policy Research.
    7. Daron Acemoglu & Joshua Linn, 2004. "Market Size in Innovation: Theory and Evidence from the Pharmaceutical Industry," The Quarterly Journal of Economics, Oxford University Press, vol. 119(3), pages 1049-1090.
    8. David Cutler & Jonathan S. Skinner & Ariel Dora Stern & David Wennberg, 2019. "Physician Beliefs and Patient Preferences: A New Look at Regional Variation in Health Care Spending," American Economic Journal: Economic Policy, American Economic Association, vol. 11(1), pages 192-221, February.
    9. Ellis, Randall P. & McGuire, Thomas G., 1986. "Provider behavior under prospective reimbursement : Cost sharing and supply," Journal of Health Economics, Elsevier, vol. 5(2), pages 129-151, June.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Health Insurance; Payment Systems; Physicians;

    JEL classification:

    • H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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