Performance Improvement 1996. Monitoring the Impact of Medicare Physician Payment Reform on Utilization and Access



This report to Congress examined the impact of legislation that reformed Medicare payment methodology to physicians. Through analysis of Medicare databases and national surveys, the report examined the use of, and access to, Medicare services before and after the new payment system was launched. Among the major findings was that legislative reforms in physician payments led to the outcome that Congress intended: the legislation shifted utilization away from surgical procedures and toward medical evaluation and management. According to the report, the legislation did not create new barriers to care for vulnerable patient groups. The report also found strong racial and income disparities in utilization. Finally, the report provided directions for future study of the relationship among income, race, and access to care.


The purpose of this report was to keep Congress abreast of changes in Medicare patients' access and utilization following the passage of legislation in 1989 that introduced changes in Medicare physician payment policies. The report sought to provide detailed analyses of whether the legislation resulted in a shift to greater reliance on primary care and medical specialties and less reliance on surgical specialties. The report also sought to analyze barriers to, and satisfaction with, physicians' care and the relationships among race, income, health status, and utilization.


This report represented the fifth in a series of annual reports required by Congress under the Omnibus Budget Reconciliation Act of 1989 (Public Law 101-239). One key purpose of this legislation was to create a more rational and equitable payment system for physicians' services under Medicare. The law mandated a Medicare Fee Schedule (MFS) that fundamentally changed the way physicians were paid. Instead of doctors' payments being based on what they charged for each service, payments are now based on a relative value scale, which reflects the relative costs of the resources needed to provide various physician services. The MFS shifted physician payments from surgical procedures to evaluation and management services. The law also placed limits on billing for amounts above the MFS fee and instituted target rates of growth in Medicare physician expenditures.


Researchers from the Health Care Financing Administration prepared the main body of the report, which summarized and integrated all analyses conducted by HCFA and by the Center for Health Economics Research. The analyses, contained in 12 separate appendixes, were based on several Medicare databases and ongoing national surveys. For example, utilization information was derived primarily from Medicare's national claims history files and its Medicare provider analysis and review (MEDPAR) file. Other utilization information came from the National Health Interview Survey conducted by the National Center for Health Statistics and from the Medicare Current Beneficiary Survey conducted by HCFA. Income information was estimated from U.S. census data based on beneficiary zip codes from the claims files. Information on patient satisfaction was derived from the Medicare Current Beneficiary Survey. To determine the impact of instituting MFS, the analyses examined trends during the years after the new system was established (1992-94) and made comparisons with data from the year before (1991).


The report's major finding was that the legislation achieved its intended objective to enhance the use of medical services and lower the use of surgical services. For example, from 1992 to 1993, claims for medical visits and consultations increased by 9.3 percent, while claims for doctors' services related to surgery, radiation therapy, and anesthesiology declined by 2.4 percent (see table II-1). These trends were consistent with those found during the first year of operation (1992) relative to the final year of the conventional fee-for-service system (1991).


Table II-1. Medicare Part B Fee-for-Service Claims: Allowed Charges by Type of Service, 1991, 1992, and 1993



Visits and
Rad. Ther.,
& Assistants

X-ray and
Lab Tests


Allowed Charges (in millions)
1993 $46,124 $16,311 $12,984 $8,962 $7,868
1992 43,942 14,926 13,301 8,785 6,930
1991 42,915 13,885 14,116 8,727 6,186
Percent Changes
1992-93 5.0 9.3 -2.4 2.0 13.5
1991-92 2.4 7.5 -5.8 0.7 12.0
Adjusted for Changed Population
1992-93 3.5 7.8 -3.8 0.6 12.0
1991-92 0.7 5.7 -7.3 -1.0 10.2

Source: Medicare Part B Monitoring System: Allowed charges derived from Medicare National Claims History File. Population information from June 30 Medicare Part B enrollment files.

The report amplified these general trends with specific information about utilization rates for numerous procedures. From 1992 to 1993, there was a decline in rates of many procedures. For example, the rate of sigmoidoscopies (per 1,000 beneficiaries) declined by 8.9 percent; the rate of hip replacements declined by 1.8 percent; and the rate of hysterectomies declined by 5.4 percent.

Overall, the passage of the legislation was associated with improved patient access. There were general increases in the number of visits per beneficiary for outpatient, nursing home visits, and consultations. But disparities emerged when these data were analyzed for vulnerable populations within the overall Medicare population. Vulnerable populations are defined as beneficiaries who live in rural areas, poor areas, or areas with a shortage of health providers; who are African-American, Medicaid-eligible, disabled, or older than 85 years. These vulnerable populations still were found to face the barriers to care that they faced before MFS was in place. Yet MFS did not create any new barriers. The report concluded that greater understanding of barriers to care for vulnerable Medicare populations is needed.

Physicians' caseloads--the total number of different Medicare patients treated in a year--remained stable or increased during the period studied. Caseload is viewed as an indicator of physician willingness to deliver services to Medicare patients. From 1992 to 1993, the mean caseload for primary care and medical specialties tended to increase more (+4-5 percent) than that for surgical specialties (+2 percent). The trends in the mean-allowed physician charges revealed a somewhat similar pattern. Physicians in primary care and medical specialties tended to experience the greatest increases in caseload, while surgeons, radiologists, and anesthesiologists tended to experience little or no growth. Some groups of surgical specialists--ophthalmologists and otolaryngologists--may have witnessed decreases in mean-allowed charges.

According to a survey analyzed in the report, Medicare beneficiaries reported greater satisfaction with their care in the years after the introduction of MFS than before. They were more satisfied with the quality of care, its availability, the ease of getting to a doctor, and the cost. In addition, fewer beneficiaries reported a health problem for which they did not receive care.

The report also showed dramatic differences in income between White and African-American Medicare beneficiaries. Based on inferences from median household income by zip code, 73 percent of African-American, but only 19 percent of White, beneficiaries were classified in the lowest income quartile. In comparison with Whites, African-Americans experienced higher mortality rates, lower rates of ambulatory visits (see figure II-1), lower use of referral-sensitive procedures, and higher rates of hospitalization. These patterns suggest that African-Americans encountered greater barriers to comprehensive and continuous care.

Figure II-1. Ambulatory Visits per Person by Race and Income: Persons Age 65 Years and Older, 1993


Some of the racial differences in utilization were attributable to income. For example, the rate of ambulatory visits declined with income, almost irrespective of race. Whites in the lowest income quartile not only had far fewer visits than wealthier Whites, but their rate also was just as low as that for the poorest African-Americans (see figure II-1). Other analyses revealed that if incomes for Whites and African-Americans were equal, some racial differences in utilization would diminish. Race, however, continues to play a role in access and utilization.

Use of Results

This report is intended to help Congress monitor the impact of legislative changes to physicians' payments under Medicare. It is expected to build on findings presented in previous reports to Congress under the same legislation. Future studies by HCFA are to concentrate on developing new utilization measures. These measures will be used to provide Congress with greater information for policy purposes.

Agency sponsor:

Office of Research and Demonstrations

Federal contact:

Marion Gornick
PIC ID: 5493

Performer organization:

Health Care Financing Administration, Baltimore, MD