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Study: Physicians Change Treatment Patterns to Offset Payment Cuts

Elyas Bakhtiari, for HealthLeaders Media, June 18, 2010

Cutting or changing physician reimbursement doesn't always produce the desired cost savings, as physicians are likely to increase services or switch to more profitable treatments after a cut, according to a new study.

The study, which appears in the latest issue of Health Affairs, examined how oncologist treatment patterns for lung cancer changed after the Medicare Modernization Act reduced payments for certain chemotherapy drugs beginning in 2005. Officials at the time were aware that Medicare had been overpaying for outpatient chemotherapy—sometimes at six times the actual cost—and hoped a change in how the drugs were reimbursed would help lower costs, says Mireille Jacobson, lead researcher on the study and senior economist at the RAND corporation.

But physicians recouped the losses from the drop in reimbursement by increasing the amount of chemotherapy administered overall and switching from drugs with the largest cuts in profitability—carboplatin and paclitaxel—to other high-margin drugs.

"These changes may have offset some of the savings projected from passage of the bill," the authors wrote in their report.

The average profit margin on chemotherapy reimbursements dropped from about 22% above the cost of the drug in 2004 to roughly 6% the following year. In addition to changing how they utilized chemotherapy, there is also anecdotal evidence that some physicians invested more in imaging and looked for other ways to offset the drop in revenue.

Although the study was narrow in scope and measured the effects of a very specific reimbursement cut, the findings have implications for broader Medicare cuts and payment reform, Jacobson says.

"I think the lesson is really an old one, that we have failed to pay attention to," she says. "We need to think not only about making the cuts, but also behavioral responses to those cuts and how that offsets any savings."

Previous studies suggest that if Congress is unable to delay or eliminate the looming 21% cut in Medicare payments to physicians, many physicians will either increase utilization or find other ways to make up for the reduction. Typically, when a cut only affects a small portion of a physician's overall practice, he or she is more likely to drop the service altogether, Jacobson says. So doctors who don't rely heavily on Medicare right now may be willing to drop the payer altogether if reimbursement falls.

But physicians whose incomes depend heavily on Medicare payments may instead use even more expensive tests and treatments.

The authors of the study urge caution, not only in passing cuts, but also in approaching long-term payment reform. "Any redesign requires an understanding of both the value of services and the impact of changing reimbursements on the use of those services," the write.


Elyas Bakhtiari is a freelance editor for HealthLeaders Media.

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