The Impact of Fee Changes on Provider Behavior: Evidence from Asymmetric Changes in Professional and Facility Fees for Heart Disease Treatments

Background

Understanding the multiple margins of provider response to fee changes is a key issue in health economics and central to the design of payment policy. In the U.S., the price of medical services differs by site of care; those delivered in a facility setting garners a “professional fee” for the physician and a “facility fee” for the hospital, the sum of which exceeds the single price paid in a non-facility setting. I evaluate a sharp change in Medicare prices for coronary stents, a common treatment for blocked arteries in the heart. In 2013, Medicare lowered the professional fee for a patient’s initial stent, while raising the professional fee for any additional stents. Simultaneously, Medicare raised the facility fee for all stents. This study examines its effect on spending, volume, site of care, stent choice, patient selection, offsets on inpatient stenting, and spillovers onto the commercially-insured population 4 years into the policy.

Methods

This study used 2009-2016 claims for 6,405,836 Medicare beneficiaries. Segmented regression analyses estimated the impact of the policy, adjusted for age, sex, health status, secular trends, seasonality, cost-sharing, and geography. Standard errors were clustered by metropolitan statistical area. Sensitivity analyses included alterations in the functional form and dependent variables. Spillover effects onto the commercial market were analyzed among 9,222,719 individuals with employer-sponsored insurance.

Results

On average over 4 years, the Medicare policy led to an increase in spending of $2.36 per beneficiary per year on cardiac stents, a 15.6% increase over pre-intervention spending levels (p<0.001). This was driven by increased spending on drug-eluting stents in the facility setting ($2.02 per beneficiary per year increase, p<0.001), rather than bare metal stents ($0.26 increase, p<0.001). The volume of stents placed increased, on average, 0.63 stents per 1,000 beneficiaries per year (7.9% increase, p<0.001), with drug-eluting stents in the facility setting predominantly explaining this growth (0.48 stents per 1,000 beneficiaries per year or 39.8% increase, p=0.02). On the extensive margin, the quantity of patient-days during which stenting took place increased by 52 days per 1,000 beneficiaries per year (1.1% increase, p=0.001), and stents placed per patient-day increased by 0.28 per year (p=0.008) over the 4 years. The share of patients stented without active chest pain increased, whereas that with active chest pain declined. Beneficiary cost-sharing remained stable. On offsets, inpatient volume decreased by 0.04 hospitalizations per 1,000 beneficiaries per year (p<0.001). Commercially-insured populations saw an increase in spending of $0.47 per enrollee per year (10.4% increase relative to pre-intervention, p<0.001)—smaller than the Medicare effect due to lower volume and price increases.

Conclusions

Medicare’s cut in physician fees and increase in facility fees led to increased spending and volume, driven by changes in site of care, treatment choice, treatment intensity, and share of patients with stable coronary artery disease stented. Moreover, Medicare faced the full costs of this policy; hospitalizations were partially offset, and smaller increases in spending and volume among commercially-insured populations took place. Altering Medicare prices exerts multiple downstream effects on provider behavior, with potentially important unintended consequences.