Reduced Physician Payments Associated with Less Use of Physician Office Care and more Use of Emergency Rooms by Dual-eligibles

Dual eligibles (people dually enrolled in Medicare and Medicaid) constitute a particularly vulnerable population, accounting for at least one-third of Medicare and Medicaid spending, though only 15 to 20 percent of enrollment. Most are eligible for the Qualified Medicare Beneficiary (QMB) program, under which states are responsible for Medicare cost sharing, set at 20 percent of the Medicare payment rate for Part B physician services. However, since 1997, federal law has allowed Medicaid programs to pay providers the “lesser of” Medicare cost sharing and the amount, if any, by which Medicaid’s payment rate for the service exceeds the Medicare rate. Since Medicaid physician payment rates are generally below 80 percent of Medicare rates, many physicians are therefore only paid 80 percent of Medicare rates for services they provide to QMBs. The number of states in which physicians are paid 80 percent has increased over time as the number adopting “lesser of” policies has increased. This gradual policy shift serves as a pseudo-experiment that may have implications for how providers respond to price changes in other settings. Our analysis includes data from a majority of states covering a period of 13 years, unlike previous studies which were limited to a single year of data on a smaller subset of states.

We expand on prior work by estimating difference-in-difference models with administrative data from 1999-2012 in order to analyze how policy changes over time have affected access to care for QMBs compared to Medicare-only enrollees. We compiled information about “lesser of” policies and Medicaid fees from the Kaiser Family Foundation, MACPAC, and the Urban Institute, supplemented with primary research on the timing of state policy changes. We also explored the effect of Medicaid payment rates for primary care services relative to Medicare. Those specifications were limited to a subset of years because of the availability of Medicaid fee data, but produced broadly similar results. In addition, we estimated the effects of policies on subsets of beneficiaries with diagnoses of diabetes, hypertension, chronic obstructive pulmonary disease, or congestive heart failure.

During our study period, duals experienced an increase in emergency room (ER) visits and a decrease in primary care visits relative to Medicare-only enrollees. We found that “lesser of” policies were associated with both of those changes. While magnitudes were similar across specifications, statistical significance varied. The adoption of a “lesser of” policy increased the probability of having any ER visit by 7 percent for duals relative to Medicare-only enrollees in the full sample, from a baseline of 23.1 percent in 1999. The effect on primary care visits was smaller—a 2 percent decline relative to a baseline of 3.3 visits in 1999—perhaps suggesting that our measures of preventive care use are noisy. Results were similar for our chronic condition subsets. Together, our results suggest that state adoption of “lesser of” policies—and the attendant reduction in physician payment rates—is associated with reduced access to primary care and more emergency events for duals over time.