Health Practitioner Bonuses and Their Impact on the Availability and Utilization of Primary Care Services. Literature Review


The Lewin Group has reviewed the existing key health and labor economics literature for evidence regarding the potential impact of financial incentives on the supply of health care providers and services. The objectives of the literature review were to: (1) document the likely quantitative range of the effects of earnings increases (in the form of bonuses or other financial incentives) on the supply of primary care providers and services nationally or in underserved areas, and (2) explore the likely impact of the increase in Medicaid reimbursement rates for primary care providers on the volume of these providers and their services under Medicaid. This work can contribute to the broader understanding of provider behavior and the type and level of financial incentives that are likely to achieve the desired supply responses.

The literature that directly examines the Medicare bonuses and resultant impact on the supply of primary care providers and services is very limited. To address this limitation we expand our focus to include the labor economics literature. This broadened search then includes studies that address the behavioral impact of earnings on medical workforce. In what follows, we discuss the major findings from the existing literature on the effects of financial incentives (such as Medicare bonuses and increased Medicaid reimbursement rates) on primary care workforce and services. Overall, the scope of the literature review can be classified under the following categories:

  1. Effects of earnings on: (a) specialty choice by physicians; (b) the labor supply of physicians and nurses in terms of work hours and labor force participation; and (c) the volume of services;

  2. Effects of financial incentives on the supply and retention of primary care providers in designated underserved areas (HPSA/PSA) and states’ experiences thereof;

  3. Impact of increases in Medicaid reimbursement rates on the supply of primary care providers and the volume of patient care under Medicaid on a state by state basis, as well as systemic effects.

There is considerable concern regarding a potential future primary care physician shortage and potential constriction of access to primary care. The availability of primary care is particularly important for public payer programs, such as Medicaid and Medicare. A recent Medicare Payment Advisory Committee (MedPAC) data book indicates that six percent of Medicare beneficiaries were looking for a new primary care physician in 2011. In addition, among those who tried to get an appointment with a new physician in 2011, 35 percent reported having difficulties.14

It is worth noting that several studies (Bodenheimer et al, 2007; Vaughn et al, 2010) illustrated the large income gap between primary care providers and other specialties. Therefore, whether a very small increase in annual income, through the Medicare PCIP, would significantly influence provider behavior remains unclear. In addition, the time limited nature of the provisions may prove to be a major deterrent to a change in provider behavior. Any evidence around time‐limited bonus programs will likely show only a partial behavioral response from the targeted population. Lower bound take up rates should be expected in these programs because medical students and early career providers are unlikely to base career choices on temporary policy changes.

Historically, the Medicaid program has reimbursed physicians at a much lower rate than Medicare, paying just 66 percent of Medicare rates on average (Cunningham, 2011). Cunningham (2011) also documents that due to the low Medicaid reimbursement rates in several states fewer physicians accept Medicaid patients. In 2013 and 2014, ACA increases Medicaid reimbursement rates for certain services provided by primary care physicians to 100 percent of Medicare rates. Given the variability of Medicaid payments across states, this will be a substantial boost in payments for physicians in some states and less so in others. Current differential payment levels across states and any changes in payments over time can be exploited to examine the effect of raising Medicaid primary care reimbursement rates on the provision of primary care providers and services.

The discussion of the literature review is organized as follows: section A reviews the literature on the effect of earnings on the supply of primary care providers and services; section B discusses the evidence regarding the impact of financial incentives for primary care providers in underserved areas; section C examines the empirical evidence on the impact of state-specific changes in Medicaid reimbursement rates; and section D concludes with a summary of the major findings from the literature and their implications for understanding the allocative effects of bonus payments and other financial incentives.

14 MedPAC “ A Data Book: Health Care Spending and the Medicare Program,” June 2012, p. 97.

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