The Fed – The Consequences of Medicare Pricing: An Explanation of Treatment Choice

August 2020

The Consequences of Medicare Pricing: An Explanation of Treatment Choice

Elena Falcettoni

Abstract:

Primary care physicians (PCPs) provide more specialty procedures in less-urban areas, where specialists are fewer. Using a structural random-coefficient model and the demographic and time variation in the data, this paper shows that changes in policy-set reimbursements lead to a reallocation of the suddenly-more-remunerative procedures away from specialists and toward PCPs, and this effect is stronger, the more rural an area is. A reimbursement-unit increase for a given procedure leads to outside-metro PCPs gaining 7-15% market share more than metro PCPs in that procedure, at the expense of specialists. Small metropolitan areas and very rural areas are the most affected.

Keywords: Primary care physicians; Specialists; Specialty procedures; Rural; Reallocation; Medicare; Fee-for-service.

DOI: https://doi.org/10.17016/FEDS.2020.063

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Last Update:
August 21, 2020

Source: Federal Reserves

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