Understanding the recent growth in Medicare physician expenditures

This study employs several large Health Care Financing Administration data sets for 1983 and 1985 to examine the recent growth in Medicare physician services. The study concludes that the recent growth (approximately 15% in real terms between 1983 and 1985) has been more rapid in areas with higher incomes per capita and suggests that this may be related to faster adoption and diffusion of new medical technologies in these areas. The volume of physician services had grown considerably faster for those specialists who utilize newer procedures and technologies than for those who do not. The study also provides evidence that the sharp increase in assignment rates in recent years because of the introduction of the physician participation program also contributed to the growth in physician services during this period. Medicare's prospective payment system, which controlled hospital payments and encouraged hospitals to become more efficient, had at most a small positive impact on the growth in Part B spending. Finally, the freeze on physician's fees did not seem to have had a major impact on the volume of physician services.