EFFECTS OF LOWER SURGICAL FEES ON THE USE OF PHYSICIAN SERVICES UNDERMEDICARE

Background and Objective.-The changes in physician fees that will occu r under the resource-based Medicare Fee Schedule (MFS) are similar to those that took place under the Omnibus Budget Reconciliation Act of 1 987 (OBRA 87), when Medicare fees for selected ''overpriced'' procedur es and diagnostic tests were reduced. To gain insight regarding the ch anges in utilization that may occur under the MFS, this study examines the effects of the OBRA 87 fee reductions on the use of physician ser vices by Medicare patients. Data and Methods.-The five specialties tha t were most affected by the OBRA 87 fee reductions were studied: ophth almology, thoracic surgery, urology, orthopedic surgery, and gastroent erology. Medicare physician claims files for 1987 and 1989 were used t o obtain data on utilization and fees. Multivariate regression analysi s was used to assess the effect of changes in fees on changes in utili zation. Results.-The best estimate of the effect of the OBRA 87 fee re ductions on overall physician-services utilization, obtained by poolin g the five study specialties, was that every 1% decrease in fees led t o a 0.09% decrease in the volume and complexity of services (95% confi dence interval, 0.49% decrease to 0.31% increase). This result was not sensitive to minor changes in the covariates included in the regressi on model. Conclusion.-To calculate payment levels during the transitio n to the MFS, the Health Care Financing Administration assumed that ph ysicians whose Medicare revenue declines under the MFS will increase s ervice volume and complexity enough to make up one half of the lost re venue. The findings of this study suggest that the Health Care Financi ng Administration's assumption was, at best, extreme.