The Spillover Impacts of a Medicare Payment Reform

By altering the incentives faced by providers, Medicare can indirectly affect care for the privately insured. Healthcare research on these spillover effects has focused on Medicare Advantage and traditional fee-for-service (FFS) Medicare or used payer mix variation to identify the effects of public insurance schemes, but scarce research assesses the indirect effects of Medicare on the population under age 65. This paper does just that, using a recent Medicare payment shock where some providers (but not all) moved from a traditional FFS payment model to a model that rewarded patient management and cost containment.

In 2016, the Centers for Medicare and Medicaid Services (CMS) introduced the Oncology Care Model (OCM) that included two distinct changes to provider reimbursement. First, participating providers were paid a monthly patient management fee to encourage care coordination. Second, a shared-savings program was established that rewarded providers when actual patient spending – administered at the patient-level – was below a projected benchmark level determined by CMS. Evidence suggests that the OCM program prompted practice reorganization, including the hiring of non-physician clinicians, and led to an increased emphasis on evidence-based treatment. Given that Medicare represents a significant portion of practice total reimbursement, it is conceivable that the OCM program may have induced changes in spending and health care use for patients with private insurance.

Using a unique dataset of medical claims from a large provider network, I estimate the spillover effects to the privately insured of the OCM program. These data are particularly suited to examining these issues as half of the provider practices in the sample participated in the OCM program and half did not. The practices themselves exhibit many features that make them compelling comparators: they are part of the same network and thus face similar input prices and care sensibilities, they have the same technologies by way of electronic medical records and financial management systems, they host several networking conferences throughout the year, and they share some common back-office staff. I use a differences-in-differences methodology to measure the effects of the OCM program on utilization and cost among patients with private insurance. I couple this analysis with an event study to assess the onset effects of the policy. Primary outcomes include changes in expenditures, such as drug-spend and total-spend, and secondary outcomes include changes in utilization of specific services such as regular visits to mitigate unnecessary hospitalizations or emergency room visits.

Preliminary results suggest that the Medicare change affected the utilization and cost outcomes for the privately insured population under age 65. Shared-savings models have elsewhere shown modest first year effects among those directly managed under those payment systems; this analysis will clarify whether, where, and to what magnitude these effects spillover to privately-insured patients uninvolved with the program.