Medicare Fees and the Volume of Physicians' Services

With health care costs on the increase and a growing population now using Medicare, the Medicare Board of Trustees has predicted that the program will become insolvent in 2017. Most of the recent growth in costs is due to the increasing volume of services offered by physicians to their Medicare patients.

This paper considers whether changes in Medicare fees that negatively affect physicians’ incomes also affect service volume. The authors explore whether the increase in services and therefore costs could be caused by factors other than Medicare fees, such as a weaker demand for services among privately-insured patients. Physician data from the Community Tracking Study were used to look at 13,707 physicians who treated Medicare patients for eight types of services.

Key Findings:

  • A strong positive relationship between Medicare fees and volume of patient services.
  • Relationships varied depending on which services were being considered.

The authors suggest that Medicare might alter its fee structure so that fees are higher for patient services generally thought to be beneficial and undersupplied, and lower for those services considered to be ineffective and oversupplied.