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The American Journal of Managed Care July 2018
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Prices for Physician Services in Medicare Advantage Versus Traditional Medicare
Julius L. Chen, PhD; Andrew L. Hicks, MS; and Michael E. Chernew, PhD
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Prices for Physician Services in Medicare Advantage Versus Traditional Medicare

Julius L. Chen, PhD; Andrew L. Hicks, MS; and Michael E. Chernew, PhD
For a set of common physician services, employer-sponsored Medicare Advantage plans are found to pay prices that are similar to traditional Medicare rates.
ABSTRACT

Objectives: To compare the prices paid to physicians by employer-sponsored Medicare Advantage (MA) plans with those paid by traditional Medicare (TM) and to determine whether the relationship between MA and TM prices is affected by the generosity of MA benchmarks.

Study Design: Descriptive analysis of medical claims data from the 2014-2015 MarketScan Medicare Claims Database.

Methods: We focus on claims for low-complexity office visits with an established patient (Current Procedural Terminology [CPT] code 99213) and electrocardiograms (CPT code 93000). For a given service, we identify the prices paid by MA plans and by TM in a metropolitan statistical area (MSA), which is our definition of a market. We then construct an MA-to-TM price ratio for each MSA and report the median price ratio. In a subanalysis, we disaggregate the result for office visits by MA benchmark generosity.

Results: For both services, the estimated median price ratio is close to 1.00. We also find that even as MA benchmarks (relative to local fee-for-service spending) increase, the median price ratio for office visits remains close to 1.00.

Conclusions: After analyzing claims for common physician services, we find that employer-sponsored MA plans pay prices that are similar to TM rates. This holds even as the generosity of MA plan payment changes. Similarity between MA and TM prices appears to be stable over time, despite recent policy changes. Our findings emphasize the important role that TM plays in the MA market and that TM payment changes could have a spillover effect on MA prices and spending.

Am J Manag Care. 2018;24(7):341-344
Takeaway Points

There is growing evidence that Medicare Advantage (MA) plans and traditional Medicare (TM) pay similar prices for physician and hospital services. 
  • Despite recent policy changes that may have had an impact on prices, employer-sponsored MA plans still pay near-TM prices for 2 common physician services. 
  • For routine office visits, similarity between MA and TM prices holds even as the generosity of MA plan payment, in terms of MA benchmarks, changes. 
  • Our findings emphasize the important role that TM plays in the MA market and that TM payment changes could have a spillover effect on MA prices and spending.
High prices are a significant reason that healthcare spending in the United States exceeds that in other developed countries.1 In part, this reflects the American system’s reliance on private markets to manage healthcare spending. Concern over high prices has motivated research that attempts to quantify cross-payer price differences. An extensive literature finds that prices paid for both hospital2-4 and physician2,3,5 services in the commercial group market are consistently higher than those paid by traditional Medicare (TM). Much less research has compared prices paid by Medicare Advantage (MA) plans with those paid by TM. However, emerging evidence suggests that prices for hospital6-10 and physician11 services paid by MA plans are similar to TM prices (and thus well below the prices paid by the same plans for their commercial business).

In this study, we update and extend the work of Trish et al,11 who compare the fees paid for physician services by 1 MA insurer with TM rates for 2007-2012. Specifically, our data cover multiple insurers and span 2014-2015. Expanding the set of insurers studied increases confidence in the generalizability of the results. More recent data are important because key policy changes since 2012 may have affected both MA and TM prices. In MA, changes under the Affordable Care Act (ACA) to benchmark calculation and ending of a 2012-2014 demonstration for quality bonus payments reduced the benchmarks that many plans faced. In TM, the 2013 cuts to provider payment under sequestration, coupled with the sustainable growth rate formula’s constraint on payment updates, contributed to low annual increases in physician fees. Thus, in light of these recent policies, we re-examine the relationship between MA and TM prices. Lastly, we extend the literature by investigating whether the relative prices paid by MA plans differ based on the generosity of plan payment.

METHODS

Data

Our primary data source is the 2014-2015 Truven MarketScan Medicare Claims Database, which captures utilization and spending for retirees who are enrolled in either group-based MA plans or employer-sponsored supplemental plans to TM. MarketScan includes claims from numerous large employers and insurers across the United States. We restrict the data to patients who are continuously enrolled for at least the full calendar year and reside in metropolitan statistical areas (MSAs). We observe medical claims for 134,941 MA and 152,783 TM beneficiary-years.

Classifying Plans

To classify plans in MarketScan, we utilize information on plan type and the fraction of enrollee spending that is covered by third-party payers (the coordination of benefits [COB] fraction). For Medicare supplemental plans (which pay the TM price), TM pays most of the claims’ costs and is a third party, so the COB fraction is high. For MA plans, the private plans themselves are the primary payer, so the COB fraction is low. We examine the distributions of COB fractions for different plan types and identify clear cutoffs for the fraction; the distributions are available in the eAppendix (available at ajmc.com). Medicare supplemental plans are defined as those with a “comprehensive” plan type and COB fraction of 0.7 or greater. MA plans are defined as those with a plan type consistent with MA managed care (eg, health maintenance organization, preferred provider organization) and COB fraction of 0.4 or less. We exclude private fee-for-service (FFS) plans. We also exclude plans with any capitated claims, because we cannot observe prices for individual services paid under capitation, and prices for these plans’ noncapitated claims may be affected by unobservable plan features.

Services Studied

We focus on low-complexity office visits with an established patient (Current Procedural Terminology [CPT] code 99213), the most frequently billed procedure in our data, and electrocardiograms (CPT code 93000), the most frequently billed diagnostic test in our data. Our measure of price is the total payment made to the physician for a service, including both insurer payments and patient cost sharing. We restrict our analysis to claims that are paid in network, have the office as the reported place of service, and are for professional services. We drop claims with 0 or negative price (less than 1% of claims for each service that we analyze).

Analysis

To increase sample size, we pool the data across 2014 and 2015. We use the MSA, which is the smallest geographic unit that we can observe in MarketScan, as our definition of a market. For a given service, we estimate the TM price using the median price across all Medicare supplemental claims for the service in an MSA. Similarly, our estimated MA price is the median price across all MA claims for the service in an MSA. We divide the MA price by the TM price to obtain an MA-to-TM price ratio for each MSA. Lastly, we calculate the median of the MSA-level price ratios. Results are similar if we take the mean instead. As a robustness check, we calculate an MA-to-TM price ratio for each unique combination of an MA plan and the MSA in which it operates; we obtain similar results.

In subanalyses, we divide the MSAs into 4 groups based on the generosity of MA benchmarks, as measured by the ratio of the benchmark to local FFS spending. Under the ACA, county benchmarks are set at 95%, 100%, 107.5%, or 115% of per capita FFS spending in the county. Counties in the highest quartile of FFS spending receive 95% of FFS, whereas counties in the lowest spending quartile receive 115% of FFS. We aggregate county benchmarks to the MSA level by taking an equally weighted average of the constituent counties’ benchmarks. We then place MSAs into 4 groups based on their benchmark ratios and report the median MA-to-TM price ratio for each group. Because of variation across counties in an MSA and transition to ACA-outlined benchmarks, the actual MSA benchmarks are not precisely 95%, 100%, 107.5%, or 115% of FFS, but the mean benchmarks of our 4 groups are very close (by construction).


 
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