Seeking a replacement for the medicare physician services payment method

Business and government spending on physician services have soared over the last few decades. Most payers for services traditionally peg their payment rates to Medicare. However, most consider the current Medicare single payment rate flawed because it fails to improve health outcomes or control spending. Everyone wants to replace it, but good replacements have not been identified. We estimated elasticities of the single-payment rate with respect to several of its determinants, proposed a replacement-a service-specific payment rate-for the single-payment rate, and estimated the budget implications of this replacement. Key findings are that the single-payment rate is relatively inelastic to the Sustained Growth Rate (SGR)1 and expenditure levels and that the proposed service-specific payment rate promotes primary care, controls spending, and saves money. © 2007 National Association for Business Economics.