PRICE CONTROLS AND MEDICARE SPENDING - ASSESSING THE VOLUME OFFSET ASSUMPTION

This study provides new estimates oft he ''volume offset'' that may oc cur when payment rates for Medicare physician services are changed. Cu rrently, policy makers assume that 50 percent of all payment rate decr eases are offset by volume increase and that this occurs uniformly acr oss all types of services. Using data from 1986 through 1992 and time- series, cross-sectional regression analysis, the authors show that alt hough volume growth does offset reductions in fees, the effect is gene rally smaller than 50 percent and varies considerably by type of servi ce and specialty. For imaging and evaluation and management services a n offset of about 25 percent, and for tests an offset of about 25 per cent, would seem more appropriate;for procedures, the current 50 perce nt offset is consistent with this study's results. In addition, this a nalysis suggests that the offset should be considered as a response to fee increases as well as decreases.