Medicare, Medicare Advantage physician rates nearly equal

Medicare Advantage plans managed by private insurers pay physician prices that are similar to traditional Medicare rates, according to a new USC-led study.

More and more Medicare beneficiaries are enrolling each year in Medicare Advantage, but experts knew little about their physician reimbursement differences or similarities.

“With 1 in 3 beneficiaries enrolled in Medicare Advantage, it is important to look under the hood and get a better understanding of how these plans operate,” said Erin Trish, the study’s lead author and an assistant research professor at the USC Schaeffer Center for Health Policy and Economics. “We found that physician reimbursement rates in Medicare Advantage are very similar to traditional Medicare. This is very different than what we see in the commercial insurance market, where insurers tend to pay physicians more than Medicare — sometimes much more.”

The traditional Medicare program is administered by the federal government. The Medicare Advantage program instead gives beneficiaries a choice of enrolling with a private health plan that has contracted with the government to provide health insurance benefits to Medicare beneficiaries.

For the study published on July 10 in JAMA Internal Medicine, Trish and her colleagues at the Schaeffer Center analyzed a sample of 144 million Medicare, Medicare Advantage, and commercial claims filed from 2007 to 2012 in metropolitan areas. They compared reimbursement rates for 11 common procedures, from a doctor’s visit to a colonoscopy, and found that the mean Medicare Advantage reimbursement rate nearly matched the traditional Medicare rate in many cases.

For example, the mean rate for an office visit in Medicare Advantage was 97 percent of the traditional Medicare rate. Medicare Advantage’s mean reimbursement rate ranged from 91 percent of traditional Medicare’s rate for the physician fee for a cataract removal in an ambulatory surgery center to 102 percent of traditional Medicare for a complex emergency department visit.

The researchers concluded that traditional Medicare rates appear to anchor the prices paid by Medicare Advantage.

The researchers also analyzed prices paid for commercial patients to see how they compared to Medicare’s. For the most part, the insurer was paying higher prices for procedures for its commercial patients. However, they did find a few services — including lab tests and durable medical equipment — where the commercial prices were actually lower than traditional Medicare.

For example, the mean commercial rate for a complete blood count lab test billed by an independent lab was about 70 percent and for a walker it was about 71 percent of  traditional Medicare rates. The researchers found that the insurer also took advantage of these lower payment rates for their Medicare Advantage enrollees.

Political barriers slow down Medicare’s ability to follow the private sector when markets lead to lower prices. Medicare Advantage.

Paul Ginsburg

“There are a few important examples where Medicare’s reimbursement formulas are outdated and private insurers have been able to negotiate lower prices than Medicare,” said co-author Paul Ginsburg, a professor at the USC Price School of Public Policy who directs the USC-Brookings Schaeffer Initiative on Health Policy. “Political barriers slow down Medicare’s ability to follow the private sector when markets lead to lower prices. Medicare Advantage plans have not been constrained and obtained lower prices for enrollees.”

The USC Schaeffer Center is a leader in health care policy research. Its partnership with the Center for Health Policy at Brookings — the USC-Brookings Schaeffer Initiative on Health Policy — aims to inform the national health care debate with rigorous, evidence-based analysis leading to practical recommendations.

Comparing Medicare with commercial prices

The researchers analyzed 15 million claims for Medicare Advantage beneficiaries, 120.7 million claims for traditional Medicare enrollees and 8.5 million claims for commercial enrollees.

They compared physician reimbursement rates for various services such as an office visit, emergency visit, knee replacement, cataract removal and colonoscopy, as well as rates for laboratory tests and medical equipment, such as a walker or a mask for respiration. The researchers focused on claims data from metropolitan areas.

Rates paid by Medicare Advantage plans were often similar to Medicare’s in many cases. For example, the mean rate for an office visit in Medicare Advantage was 97 percent of the traditional Medicare rate. The mean physician fee for an outpatient colonoscopy was 99 percent of the traditional Medicare rate.

The commercial insurer was paying more than Medicare, on average, for all the physician services they evaluated, and markups over traditional Medicare’s rates were higher for procedures that require specialists. In the commercial market, the mean rate for an office visit was 107 percent of the traditional Medicare rate, while the mean physician fee for an outpatient colonoscopy was 152 percent of the traditional Medicare rate.

The researchers noted that there are limitations to the findings. The Medicare Advantage and commercial data are from a single insurer and therefore may not represent all private insurers. However, it is an insurer with a large Medicare Advantage market share, they noted, so its rates may well reflect the market.

Trish said that researchers are increasingly focused on studying the pros and cons of Medicare Advantage because of its increasing popularity.

“We’re at the point where a third of Medicare beneficiaries are enrolled in a Medicare Advantage plan,” Trish said. “That’s a lot of people and a lot of money, so it’s important to understand how this market works.”

The other study co-authors were Laura Gascue and Geoffrey Joyce of the USC Schaeffer Center.

The research was funded by a grant from the Robert Wood Johnson Foundation (72712).