Changes in Medicare Reimbursement in Colorado: Impact on Physicians' Economic Behavior

In 1976 there was a change in Medicare reimbursement policy in the State of Colorado. This study analyzes the impact of that change on physicians' economic behavior. Through 1976, prevailing charges (one of the determinants of the level of physician reimbursement under Medicare) were computed separately within each of 10 regions of Colorado. Since then, they have been computed for the State as a whole, and thus, physicians in like specialties have had equal prevailing charges throughout the State. This change in reimbursement policy led to a relative increase in prevailing charges for physicians in small urban and nonurban areas of the State, and a relative decrease for physicians in the major urban areas. In this paper we analyze the impact of this change on several aspects of physician behavior. We found that physicians whose reimbursement rates declined as a result of the change—primarily those in the Denver/Boulder area—provided more-intensive medical services, had lower assignment rates, and charged lower prices than they would have in the absence of the change. Those physicians whose reimbursement rates increased as a result of the change—primarily those in small urban and non-urban areas of Colorado—provided less-intensive services, had higher assignment rates, and charged higher prices than they would have otherwise. We did not find any evidence that physicians responded to the change by altering the number of laboratory tests and X-rays they provided.