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Has PPS increased Medicare expenditures on physicians?
J Holahan1, A Dor, S Zuckerman
1Urban Institute.
Abstract:
We use data from 1983 and 1985 on the volume of Medicare physician services to analyze whether Medicare's Prospective Payment System (PPS), which resulted in a significant decline in hospital spending, led to a partially offsetting increase in real expenditures for physician services. We also analyze the effect of increases in assignment rates, increasing incomes of the elderly, and other factors on real expenditures during this period. Our main conclusion is that PPS has at most a small positive effect on real physician expenditures. Because people spent less time in the hospital, Medicare physician spending declined; but because of incentives to shift radiology and other services out of the hospital, some of this decline was offset. We also conclude that the sharp increase in Medicare assignment rates over this period, along with the rising incomes of the elderly during this period, contributed to the observed growth.
Insights
Medicare's Prospective Payment System (PPS) minimally impacted physician spending. While hospital costs decreased, physician services saw a slight increase due to shifts in service delivery and rising elderly incomes.
Area of Science:
- Health Economics
- Medicare Policy
- Physician Services Analysis
Background:
- Medicare's Prospective Payment System (PPS) significantly reduced hospital spending.
- The study period (1983-1985) saw changes in healthcare utilization and elderly demographics.
Purpose of the Study:
- To determine if Medicare's PPS caused an increase in physician service expenditures.
- To analyze the impact of assignment rates and elderly income on physician spending.
Main Methods:
- Analysis of Medicare physician service volume data from 1983 and 1985.
- Statistical examination of factors influencing real expenditures for physician services.
Main Results:
- The Prospective Payment System (PPS) had a minimal positive effect on real physician expenditures.
- A decline in hospitalizations led to decreased Medicare physician spending, partially offset by service shifts.
- Increased Medicare assignment rates and rising elderly incomes contributed to observed spending growth.
Conclusions:
- Medicare's PPS did not substantially increase overall physician expenditures.
- Shifts in service delivery from hospitals to outpatient settings partially offset PPS-induced savings.
- Rising elderly incomes and higher Medicare assignment rates were significant drivers of physician spending growth during this period.