The Impact of Medicare Coverage Policies on Health Care Utilization

Medicare provides health coverage for nearly 40 million Americans; it’s the elder population and the disabled who are the program’s beneficiaries. Medicare specifically excludes certain categories of health procedures and treatments from its program, such as personal health care, and will pay only for items and services considered “reasonable and necessary.” What constitutes “reasonable and necessary” depends on a variety of factors including where the Medicare recipient resides. This study addresses whether Medicare’s coverage policies change provider behavior and/or affect how much certain types of services are used. The researchers tracked eight different procedures in diverse locations. Data were collected from two sources: Medicare claims from 1999 to 2002 and local coverage policies posted to the Center for Medicare and Medicaid Services Web site in May 2001.

Key Findings:

  • Only in one procedure out of eight did Medicare coverage (or lack thereof) affect utilization—transesophageal echocardiography. The treatment showed a 13.6 percent reduction in usage after the effective date of the local policies.
  • In general, the authors found no systematic evidence that policies affect utilization of services.

Policy-makers assume that Medicare imposes significant limitations on physician behavior. This study disproves this hypothesis.