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Physician volume response to price controls.

N X Nguyen1

  • 1World Bank, Washington, DC 20433, USA.

Health Policy (Amsterdam, Netherlands)
|January 8, 1996
PubMed
Summary

Physician fee reductions can lead to increased service volume, offsetting cost savings. This "volume response" indicates price controls alone are insufficient for healthcare cost containment.

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Area of Science:

  • Health Economics
  • Healthcare Policy
  • Medical Practice Management

Background:

  • Escalating healthcare costs present a significant challenge to health systems globally.
  • Price controls are frequently proposed as a strategy to manage healthcare spending growth.
  • However, provider responses, such as increased service volume, can diminish the effectiveness of price controls.

Purpose of the Study:

  • To investigate the physician behavioral response to fee reductions.
  • To quantify the volume response in the U.S. Medicare program following fee cuts.
  • To assess the impact of physician behavior on healthcare cost containment strategies.

Main Methods:

  • Analysis of U.S. Medicare program data from 1989-1990.
  • Examination of physician practice-level data following fee reductions mandated by OBRA89.
  • Statistical analysis to determine the relationship between fee changes and service volume.

Main Results:

  • A 10% reduction in physician fees led to a 3.7% increase in the volume of services.
  • Physicians recouped approximately 37 cents for every dollar reduction in fees through increased volume.
  • This demonstrates a significant behavioral offset in response to fee controls.

Conclusions:

  • Physician "volume response" partially negates savings from fee reductions.
  • Price controls alone are insufficient for effective healthcare cost containment.
  • Additional or alternative strategies are necessary to achieve sustainable cost containment in healthcare.

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