Journal of Health Politics, Policy, and Law--December 1999
This study examines how the volume of privately insured services provided in
hospital inpatient and outpatient departments changes in response to reductions
in Medicare physician payments. We hypothesize that physicians consider relative
payment rates when choosing which patients to treat in their practices. When
Medicare reduces its payments for surgical procedures, as it did in the late
1980s, physicians are predicted to treat more privately insured patients because
they become more lucrative. We use data from 182 hospitals for seventeen major
procedures groups, covering a forty-five-month period between 1988 and 1991 that
encom passes a twenty-four-month period before the reduction in Medicare fees
and twenty-one months after the reduction. Our findings are consistent with the
predictions for a number of procedure groups, but not for all of them. One
implication of the findings is that societal savings from Medicare fee
reductions are overstated if one does not also consider spillover effects in the
private insurance market.