Alternative approaches to physician reimbursement under medicare: a simulation

A simulation approach was used to compare the effects of different methods of determining reasonable charges for physicians' services under Medicare on government outlays, physician revenues, and beneficiaries' financial burdens. This is an important policy area because of fee inflation and rises in physician income. Queens County claims for 1976 and 1977 were used for this analysis. The different methods that were compared to the current method, which is the 75h percentile of weighted customary charges adjusted for the Economic Index, included a single prevailing that dispensed with specialty groupings, an unadjusted prevailing eliminating the Economic Index correction, and average reasonable charges in a base year computed with and without regard for specialty board certification. The results of the trials showed that program costs are about 8 per cent higher without the Economic Index. The single prevailing cuts government costs but substantially raises beneficiaries' out-of-pocket costs. Patients not receiving assignment were most likely to have greater burdens. The average reasonable charge approach had little effect on any of the participants and does not justify the additional expense of the shift in computer programs. As a fee schedule approach would probably use single prevailing prices, the fact that socially undesirable results are generated is significant.