Health Practitioner Bonuses and Their Impact on the Availability and Utilization of Primary Care Services. A. Effect of Earnings on the Supply of Primary Care Services and Providers: Role of Medicare Primary Care Bonuses

12/22/2014

The ACA stipulates multiple programs with the aim of increasing the supply and utilization of primary care services. These programs all operate on the assumption that financial incentives, specifically directed toward increased earnings, are an effective way to promote an increase in primary care services and primary care providers. While these assumptions are based upon established economic theory, the evidence as to the programs’ effectiveness in practice is mixed.

While there is general consensus that expected earnings are a key driver of medical specialty choice (Bazzoli 1985; Nicholson and Propper 2011; Nicholson 2002; Vaughn et al. 2010), the evidence regarding the effectiveness of programs designed to attract medical students in certain specialties is inconclusive. Vaughn et al. (2010) argue that programs designed to affect the number of medical students choosing primary care have largely failed while others (Fournier & Henderson 2005; Lynch 1998; Ramsey 2001) argue that these programs have had a wide range of results that can be attributed to each programs’ individual composition.

The effect of earnings on labor supply in relation to the healthcare workforce is also a complex issue. There is wide consensus that increased earnings lead to an increase in the labor supply of health services providers (Askildsen and Baltagi 2002; Baltagi 2005; Rizzo and Blumenthal 1994), but the reported magnitude of this increase in labor supply varies widely. Values reported for the wage elasticity of the primary care labor supply range from 0.23 to 0.8. Furthermore, the effect of income on retirement decisions of physicians is not well understood.

Finally, the effect of earnings on the volume of primary care services is a related but distinct issue. Much like its counterparts, the effect of earnings on the volume of services is recognized to be significant and positive, but reported effects range widely: from a 10 percent reduction in Medicare fees leading to 1.8 percent to 6.6 percent reduction in the volume of office visits to 10 percent higher fees for primary care services raising the primary care E&M visits by 8.8 percent (Hadley et al. 2009; Reschovsky et al. 2012).

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