Research & Commentary: Medicare Physician Reimbursement

Published May 2, 2012

Physicians were given insight into their cost-effectiveness last month when the federal government sent reports detailing the cost and quality of their services. The reports begin implementation of a provision of the Patient Protection and Affordable Care Act (PPACA) to pay more to physicians who lower the cost of their services while maintaining quality of care, and lowering reimbursement for physicians producing high costs without improving results.

Advocates of this provision claim it will lower health care spending and ensure better quality care because doctors will seek higher reimbursement.

Opponents say the program will cause doctors to take on fewer Medicare patients. Patients of entitlement programs are consistently more expensive to treat than others. Therefore, if doctors take on fewer Medicare patients, their reports will show lower costs and the same quality of care and they will receive greater reimbursement. In addition, the multitude of factors affecting Medicare providers and payment make accuracy of reporting impossible to ensure, and physicians’ refusal to treat Medicare patients would easily go undetected.

Cost containment within entitlement programs is more effectively achieved when beneficiaries are partially responsible for the finances.

The following documents offer additional information on Medicare and physician reimbursement.

The Urgent Need to Reform Medicare’s Physician Payment System
John S. O’Shea, M.D., contends a proposal to cut physician payments would incentivize doctors to drop Medicare patients altogether: “Reduction in Medicare payments … could lead many physicians to stop accepting new Medicare patients, to defer investments in new equipment and technology, or both.”


Pay for Performance or Compliance? A Second Opinion on Medicare Reimbursement
In a policy brief for The Heritage Foundation, Dr. Richard Dolinar and S. Luke Leininger explain why market principles are superior to a reimbursement method based on government involvement: “The current effort to change the payment system is well intentioned. Moreover, the rhetoric of ‘quality-based purchasing’ advocates, including a reliance on evidence-based medicine, best practices, and pay for performance as methods to improve health care quality, is appealing. In reality, however, they would constitute a reversal of the letter and spirit of the original Medicare law, which prohibited government interference in the practice of medicine, by further bureaucratizing health care.”


Fixing the New Medicare Law #2: How to Promote Real Medicare Cost Containment
Writing in a Heritage Foundation Policy Brief, Joseph R. Antos, Ph.D. explains why “band-aid” cost reforms fail to make a significant impact on Medicare spending. He suggests methods that would better contain the entitlement program’s costs.


Medicare’s Hidden Costs Extensive, Expensive, Report Says
Merrill Matthews Jr. of the Council for Affordable Health Insurance identifies hidden costs in Medicare. “The government doesn’t reflect all of the costs of doing business in its official estimates of Medicare administrative costs—but that doesn’t mean they don’t exist. Or that taxpayers don’t pay those costs. They do,” he writes.


Mission Impossible: Medicare’s Independent Payment Advisory Board
John R. Graham of the Pacific Research Institute highlights a provision of the federal health care law that will change the way physicians are reimbursed and end up rationing care for patients.


Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information, on this subject, visit Health Care News at, The Heartland Institute’s website at, and PolicyBot, Heartland’s free online research database at

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