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Setting physicians' prices in FFS medicare: an economic perspective.

Dowd B, Feldman R, Nyman J, Town B - Health Care Financ Rev (2006)

Bottom Line: Recent policy discussions by the Medicare Payment Advisory Commission (MedPAC) regarding physician prices in the traditional fee-for-service (FFS) Medicare Program reflect movement toward a market pricing model.An important objective in other policy settings is economically efficient distribution of services.We explain the meaning of economic efficiency for Medicare physician prices and explore difficulties one might encounter in pursuing economic efficiency, as well as the cost of not pursuing it.

View Article: PubMed Central - PubMed

Affiliation: Division of Health, School of Public Health, University of Minnesota, Minneapolis, 55455, USA. dowdx001@umn.edu

ABSTRACT
Recent policy discussions by the Medicare Payment Advisory Commission (MedPAC) regarding physician prices in the traditional fee-for-service (FFS) Medicare Program reflect movement toward a market pricing model. Earlier objectives such as sustainable levels of spending have given way to concerns over the relationship between fees and actual costs, access to care, and the importance of demand and supply in local markets. An important objective in other policy settings is economically efficient distribution of services. We explain the meaning of economic efficiency for Medicare physician prices and explore difficulties one might encounter in pursuing economic efficiency, as well as the cost of not pursuing it.

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Efficient and Inefficient Moral Hazard
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f3-hcfr-28-2-097: Efficient and Inefficient Moral Hazard

Mentions: Now suppose that individuals were assigned randomly to (1) no insurance, (2) cash payoff policies, or (3) traditional price-reduction insurance. Comparing the expenditure on health care by uninsured individuals and individuals with traditional price-reduction insurance would yield an estimate of total moral hazard. Comparing the expenditure on health care by individuals with traditional insurance versus cash payoff policies would estimate the amount of inefficient moral hazard. The comparison is illustrated in Figure 3. In this example, expenditures in response to a particular illness by uninsured consumers are $20,000, while individuals with traditional price reducing insurance spend $100,000, so total moral hazard is $80,000 ($100,000 - $20,000). Individuals with cash payoff policies spend $80,000 on health care, and thus the amount of inefficient moral hazard is $20,000 ($100,000 - $80,000). By subtraction, the remaining moral hazard of $60,000 is efficient ($80,000 - $20,000). Thus, the inefficient portion of moral hazard is the additional health care demand attributable to the use of price-reduction insurance versus cash payoff insurance.


Setting physicians' prices in FFS medicare: an economic perspective.

Dowd B, Feldman R, Nyman J, Town B - Health Care Financ Rev (2006)

Efficient and Inefficient Moral Hazard
© Copyright Policy
Related In: Results  -  Collection

Show All Figures
getmorefigures.php?uid=PMC4194984&req=5

f3-hcfr-28-2-097: Efficient and Inefficient Moral Hazard
Mentions: Now suppose that individuals were assigned randomly to (1) no insurance, (2) cash payoff policies, or (3) traditional price-reduction insurance. Comparing the expenditure on health care by uninsured individuals and individuals with traditional price-reduction insurance would yield an estimate of total moral hazard. Comparing the expenditure on health care by individuals with traditional insurance versus cash payoff policies would estimate the amount of inefficient moral hazard. The comparison is illustrated in Figure 3. In this example, expenditures in response to a particular illness by uninsured consumers are $20,000, while individuals with traditional price reducing insurance spend $100,000, so total moral hazard is $80,000 ($100,000 - $20,000). Individuals with cash payoff policies spend $80,000 on health care, and thus the amount of inefficient moral hazard is $20,000 ($100,000 - $80,000). By subtraction, the remaining moral hazard of $60,000 is efficient ($80,000 - $20,000). Thus, the inefficient portion of moral hazard is the additional health care demand attributable to the use of price-reduction insurance versus cash payoff insurance.

Bottom Line: Recent policy discussions by the Medicare Payment Advisory Commission (MedPAC) regarding physician prices in the traditional fee-for-service (FFS) Medicare Program reflect movement toward a market pricing model.An important objective in other policy settings is economically efficient distribution of services.We explain the meaning of economic efficiency for Medicare physician prices and explore difficulties one might encounter in pursuing economic efficiency, as well as the cost of not pursuing it.

View Article: PubMed Central - PubMed

Affiliation: Division of Health, School of Public Health, University of Minnesota, Minneapolis, 55455, USA. dowdx001@umn.edu

ABSTRACT
Recent policy discussions by the Medicare Payment Advisory Commission (MedPAC) regarding physician prices in the traditional fee-for-service (FFS) Medicare Program reflect movement toward a market pricing model. Earlier objectives such as sustainable levels of spending have given way to concerns over the relationship between fees and actual costs, access to care, and the importance of demand and supply in local markets. An important objective in other policy settings is economically efficient distribution of services. We explain the meaning of economic efficiency for Medicare physician prices and explore difficulties one might encounter in pursuing economic efficiency, as well as the cost of not pursuing it.

Show MeSH