Part 1. Physician payment- Medicare

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In traditional fee-for-service Medicare, physicians are paid on a per-service basis.  Payments are based on the “relative value units” of a particular service, reflecting the relative costliness of inputs.

  1. How does the mix of services provided by primary care physicians affect their reimbursement relative to specialists? (2 points)

B  –Describe the principal-agent problem in fee-for-service payment of physicians and physician-induced demand (also called supplier-induced demand). 

    -Describe the findings of Baker (2010).

   -What does this imply about physician-induced demand?  (3 points)



  1. Compare the structure of payment under the Alternative Quality Contract compared to fee-for-service reimbursement.

    -How does this change the incentives for the volume of services provided by physicians?                                   

    -Are the findings of Song, et al. (2014) consistent with your theoretical prediction?  (3 points)



  1. D. What is a potential unintended consequence of “global budgets” such as that in the Alternative Quality Contract? How does the AQC attempt to mitigate this incentive, and was the attempt successful? (3 points)





  1. E. In April 2015, Congress passed the Medicare Access & CHIP Reauthorization Act of 2015 (MACRA). Under MACRA, starting in 2019 physicians will either be paid either based on: (a) fee-for-service reimbursement, with bonuses or penalties based on quality and resource use, or (b) they will receive regular 5% payment rate increases between 2019-2014 if they participate in alternative payment models.



It is yet to be finally determined, however, what will count as an alternative payment model. Below are two simplified scenarios from Hussey, Liu, and White (2017):


Scenario 1: Alternative payment models include both patient-centered medical homes (low financial risk, essentially fee-for-service, but physicians receive a “case management” fee) and accountable care organizations (physicians are at financial risk for spending above a target).

Scenario 2: Alternative payment models just include accountable care organizations (Hussey et al. 2017).

How might physician and hospital spending differ between Scenarios 1 and 2? Please explain your answer based on the lecture and course readings. (4 points)

  1. Some policymakers have advocated for malpractice reform as a means for reducing health care spending.
  • Drawing from the readings and the lecture, describe conceptually why malpractice and health care utilization may be related. (2 points)
  • Do you think malpractice reform would reduce unnecessary health care use? Cite empirical evidence for and against. (3 points)

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