Jack Hadley, Ph.D., of George Mason University's College of Health and Human Services in Fairfax, VA, and colleagues examined data for eight specific Medicare services (office visits, hospital visits, consultations, and cardiac tests) that physicians delivered to their Medicare patients to investigate so-called volume-offset behavior, the belief that physicians respond to lower Medicare fees by increasing service volume to make up for potential lost revenue (Inquiry, Winter 2009/2010, Vol. 46:4, pp. 372-390).
They found no evidence that physicians are performing more services to make up for fee decreases. But they did find that the relative profit a physician receives for providing a service is positively related to the quantity provided -- that is, if the cost of providing a service falls more than the reduction in the Medicare fee, the service actually increases in profitability and physicians will have an incentive to increase its volume.
The results also suggest that the uniform annual changes in Medicare physician fees under current Medicare policy tend to distort physician practice patterns, not necessarily to the benefit of patients, according to Hadley. Policymakers, instead, might consider modifying Medicare fees to encourage services believed to be effective but underused and discourage services believed less effective and overused, he wrote.
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