Trends In Medicare Physician Participation And

Cite this article as: I Burney and J Paradise Trends in Medicare physician participation and assignment Health Affairs 6, no.2 (1987):107-120 doi: 10.1377/hlthaff.6.2.107

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DataWatch

by Ira Burney and Julia Paradise The Medicare participating physician program was introduced in 1984 to improve the ability of beneficiaries to identify, before receiving services, those physicians who will always accept assignment. Both participation and assignment rates are important measures of beneficiary protection from financial exposure. This DataWatch describes the Medicare participating physician program, not yet three years old, and presents historical data on participation and assignment rates nationally and by state. Identifying trends and patterns in the data represents a first step toward evaluating the program’s impact. Medicare Assignment Policy Before the Medicare participation program was introduced, physicians providing services to beneficiaries chose to accept or decline Medicare assignment on a claim-by-claim basis. Physicians who accept assignment submit their bills directly to the Medicare carrier and agree to accept Medicare approved charges as payment-in-full for their services, regardless of their actual charges. Physicians bill the beneficiary on assigned claims only for the applicable Part B deductible ($75 annually) and coinsurance of 20 percent of approved charges. Physicians who do not accept assignment bill the beneficiary directly for their actual charges, which generally exceed the amount Medicare approves. The beneficiary then files a claim with the carrier and is reimbursed for the approved charge, net of applicable cost-sharing. Thus, on unassigned claims, the Medicare patient is financially liable not only for coinsurance and deductible amounts, but also for any difference between actual and approved charges, known as “extra-billing” or “balance-billing.” Extrabilling amounts averaged 23.6 percent of approved charges for unassigned claims in fiscal year 1984, and 26.6 percent in fiscal year 1986.

Ira Burney is a senior health policy analyst in the Office of Legislation and Policy of the Health Care Financing Administration. Julia Paradise is a policy analyst in the same office. They specialize in physician payment issues.


Trends In Medicare Physician Participation And Assignment

108

HEALTH AFFAIRS | Summer 1987

The Medicare Participation Program

Participation Periods Enrollment took place in late August and September 1984 for the first participation period, October 1, 1984 through September 30, 1985. Enrollment for the second participation period was held in September 1985. After that enrollment period closed, Congress extended the freeze on Medicare physician payments and nonparticipating physicians’ actual charges several times. Because the freeze extensions were enacted after physicians had already made their participation decisions, the Consolidated Omnibus Budget Reconciliation Act of 1986 (COBRA) allowed physicians to reconsider those decisions, for the period beginning May 1 and lasting through the end of the year. COBRA also provided for an increase of 4.15 percent in maximum allowable prevailing charges for participating physicians; extended through December 31, 1986 the freeze on payments to and actual charges of nonparticipating physicians; and moved the participation period from a fiscal year to a calendar year basis. In 1987, for the first time, the calendar year participation period will run a full twelve months. During the annual enrollment period, the Medicare carriers send physicians a letter giving them the opportunity to enter into participation agreements or to continue or withdraw from existing agreements. An existing participation agreement is renewed automatically unless the physician terminates it during an enrollment period. Physicians also receive a detailed fact sheet describing the terms of participation and any


The Medicare participating physician program was established by the Deficit Reduction Act of 1984 (DEFRA) and took effect October 1, 1984. A physician who elects to participate enters into an agreement with the Secretary of Health and Human Services to accept assignment for all items and services provided to Medicare beneficiaries during a twelve1 month period. The statute provides that physicians make participation decisions annually, during an enrollment period prior to the participa2 tion year. This way, beneficiaries can identify, before they receive services, those physicians who will accept assignment all the time. The traditional option to accept assignment on a claim-by-claim basis remains for nonparticipating physicians. DEFRA also imposed a fifteen-month freeze (July 1, 1984 through September 30, 1985) on Medicare payments for physicians’ services. It likewise froze the actual charges of nonparticipating physicians, limiting the amount of extra-billing these physicians could charge to the levels in effect during a base period, April– June 1984. It was in this environment that physicians made their initial decisions regarding participation.

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109

relevant statutory changes for the upcoming period. During the enrollment period, physicians can request information from carriers on their customary and prevailing charges to assist their decision making.

DEFRA and subsequent legislation have provided for several incentives– both financial and nonfinancial– to encourage physicians to participate. Financial incentives for participation originally took the form of exemption from the freeze on actual charges. While nonparticipating physicians were prohibited from raising their charges above the base period levels, participating physicians were free to raise their charges, potentially increasing their payments in the following year. When the Omnibus Budget Reconciliation Act of 1986 (OBRA-86) replaced the freeze with limits on increases in nonparticipating physicians’ actual charges, participating physicians were again exempted from the con3 straint. In addition, effective May 1, 1986, the statute provided for a 4 percent differential between the prevailing charges applied to participat4 ing and nonparticipating physicians. In essence, then, the incentive system in the participation program has a dual nature. On the one hand, it reduces the advantages of nonparticipation by limiting the physician’s capacity to extra-bill. On the other, it rewards participating physicians with higher prevailing charges and exemption from the limits on their actual charges. Nonfinancial incentives for participation take several shapes. Participating physicians benefit from dedicated lines for electronic receipt of claims. Also, effective October 1, 1987, the prompt payment standard for carriers provides a seven-day advantage to participating physicians. The carriers annually publish local area directories of participating physicians, which include their names,. addresses, specialties, and telephone numbers. Beneficiaries receive annual notices with their Social 5 Security checks indicating the availability of the directories. The information included in the directories is also available to beneficiaries over the carriers’ toll-free telephone lines. Finally, beneficiaries are reminded of the participation program and its financial advantages for 6 them through a form sent to beneficiaries each time a claim is processed. Several other provisions of statute were designed specifically to encourage referral patterns that make use of the participation network. The law requires that directories be provided to all participating physicians and to all hospitals, which, in turn, must make them available to their patients. Also, the law requires that hospital personnel make referrals to participating physicians when practicable. The most recent legislation requires that carriers implement programs to recruit and retain participating physicians, and to make beneficiaries


Participation Incentives

110


familiar with the participation program. The carriers will be rewarded financially based on their performance in recruitment.

Physician participation in Medicare can be measured in two ways: by the number of physician participation agreements signed as a percentage of all physicians billing Medicare, and by the percentage of total covered charges accounted for by participating physicians. We believe that the rate based on covered charges is the more meaningful measure of participation as it reflects Medicare spending for services billed by participating physicians, while the rate based on agreements signed treats all physicians equally, regardless of the volume of Medicare services they provide. Therefore, with one exception, the exhibits in this DataWatch present participation and assignment rates based on covered charges. Exhibit 1 shows that, while the percentage of physicians signing agreements has remained relatively stable over the four participation periods, the percentage of covered charges accounted for by participating physicians has grown, particularly in the last two periods. Consistently, the percentage of total dollars attributable to participating physicians has been greater than the percentage of all physicians signing agreements. In FY 1985, the first year of the participation program, 30.4 percent of 7 all physicians signed participation agreements. During this same period, these physicians accounted for 36.0 percent of Medicare-covered physi8 cian charges. In the second period (October 1985 through April 1986), 28.4 percent of physicians signed participation agreements, but these physicians rendered services accounting for 36.3 percent of Medicarecovered physician charges. In the third period (May through December Exhibit 1 Medicare Physician Participation Rates: Percent Of Physicians With Agreements And Their Share Of Covered Charges Participation period

Percent of physicians signing agreementsa

Participating physician covered charges as a percent of the totalb

Oct. Oct. Apr. Jan.

30.4% 28.4 28.3 30.6

36.0% 36.3 38.7 43.7

a

‘84– Sept. ‘85 ‘85– Apr. ‘86 ‘86– Dec. ‘86’ ‘87– Mar. ‘87 d

See Note 7. Rates reflect covered charges for physician claims processed during the period. See Note 8 in text. c The actual participation period was May through December 1986, and the participation agreements were in effect for that time. Note 9 in the text explains why data from April through December 1986 were used as a proxy. d The actual participation period is January through December 1987, and the participation agreements are in effect for that time. Data from the quarter January through March 1987 are the latest available. b


Participation Rates

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111

Exhibit 2 Physician Participation Rates BY Statea Oct.’84–sept.’85

Oct. ’85–Mar.’86b

Apr. ’86–Dec. ’86b

Jan. ’87–Mar. ’87c

National

36.0%

36.3%

38.7%

43.7%

New England Maine New Hampshire Vermont Massachusetts Rhode Island Connecticut

50.9 40.1 37.3 70.7 68.7 30.7

50.4 35.1 36.0 72.9 77.1 32.3

54.0 32.7 39.8 80.2 79.6 35.9

61.0 32.7 43.7 85.7 81.9 40.0

Middle Atlantic New York New Jersey Pennsylvania

31.5 21.5 71.4

33.2 24.3 69.9

36.0 26.4 69.2

36.9 29.3 72.1

East North Central Ohio Indiana Illinois Michigan Wisconsin

24.9 18.9 29.4 55.4 31.3

27.2 29.3 31.3 44.7 21.2

28.5 31.1 32.4 39.5 30.5

35.2 38.2 38.0 66.5 35.9

West North Central Minnesota Iowa Missouri No. Dakota So. Dakota Nebraska Kansas

9.9 28.5 26.7 6.9 3.2 30.5 48.0

8.8 29.4 24.5 11.2 6.6 15.7 42.5

9.7 30.5 29.5 12.2 8.9 15.2 42.0

13.4 37.0 35.5 19.1 13.6 22.7 43.6

South Atlantic Delaware Maryland Dist. of Col. Virginia West Virginia No. Carolina So. Carolina Georgia Florida

57.0 57.8 60.3 31.0 34.5 34.4 29.9 29.3 30.0

55.8 57.1 61.3 39.3 45.2 35.7 35.9 32.5 30.1

54.9 61.2 60.8 43.6 47.2 36.5 40.8 35.1 34.1

54.7 65.3 60.8 48.4 56.4 38.9 51.5 39.3 33.8

East South Central Kentucky Tennessee Alabama Mississippi

22.3 25.1 42.5 14.3

25.0 25.2 52.0 22.6

26.3 26.7 58.6 31.0

37.3 36.2 64.9 40.6

West South Central Arkansas Louisiana Oklahoma Texas

47.9 16.2 16.6 26.2

47.6 19.4 13.6 23.3

53.6 32.9 16.2 28.1

64.9 43.6 20.1 35.1

Mountain Montana Idaho Wyoming Colorado New Mexico Arizona Utah Nevada

25.6 8.6 15.7 23.5 34.1 32.7 43.8 41.5

19.1 10.1 17.9 29.3 31.0 29.6 40.0 57.6

20.1 8.9 11.6 28.9 30.6 27.4 44.8 58.0

22.0 8.3 12.3 32.6 25.2 34.2 53.9 61.4


Census division/ State

112


Exhibit 2 Physician Participation Rates By Statea (cont.) Oct. ‘84–Sept. ‘85

Oct. ‘85–Mar. 86b

Apr. ‘86–Dec 86b

Ian. ‘87–Mar. ‘87c

Pacific Washington Oregon California Alaska Hawaii

17.5 17.3 42.2 17.2 39.7

21.5 15.7 40.2 18.2 39.5

24.3 18.7 42.5 24.9 43.5

24.1 21.7 46.4 30.3 51.3

a

In instances in which carrier jurisdictions do not coincide with state boundaries, carrier rates were converted to state rates by calculating weights for the relevant counties based on their respective shares of total 1983 Medicare physician spending for physicians’ services in the state and determining a weighted average rate. Rates reflect covered charges for physician claims processed during the period. See Note 8 in text. b The actual participation period was May through December 1986, and the participation agreements were in effect for that time. c The actual participation period is January through December 1987, and the participation agreements are in effect for that time. Data from the quarter January through March 1987 are the latest available.

1986), the 28.3 percent of physicians with agreements accounted for 38.7 percent of covered charges. The increase in participating physicians’ prevailing charges in the third period explains a significant portion (about 60 percent) of the increase in their share of covered charges between the second and third periods. But the remainder of the increase reflects a larger proportion of total Medicare services provided by 9 participating physicians. For the current participation period, 30.6 percent of physicians have signed agreements. However, the data for the first quarter of 1987 show that these physicians account for 43.7 percent of total covered charges. This difference between the percentage of physicians who participate and the share of dollars they account for is the biggest since the participating physician program began. The 43.7 percent should be interpreted cautiously, however, in light of a possible seasonal effect: the rate reflects only those claims processed during the first quarter of 1987. Beneficiaries frequently wait until they meet the $75 deductible before submitting unassigned claims, while physicians submit assigned claims more quickly. Thus the share of total covered charges accounted for by participating physicians in the first quarter may overstate the rate for the entire year. Exhibit 2 shows participation rates state by state in each of the four participation periods. Several characteristics of participation emerge from the data. First, the rates vary widely from state to state. In the current period, the rates range from a low of 8.3 percent in Idaho to a high of 85.7 percent in Massachusetts. While the participation rate nationally is nearly 44 percent, ten states have participation rates greater than 60 percent, and five states have participation rates lower than 20 percent. The five states with the lowest rates– Idaho, Wyoming, Minnesota, South Dakota, and North Dakota– are all located in the north



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Assignment Rates Exhibit 3 shows the national assignment rate beginning in FY 1972. The rates in the first column reflect the percentage of total covered charges attributable to assigned claims for services billed by both physicians and nonphysicians. The rates in the second column reflect the covered charges for services billed by physicians alone. For the years prior to the participation program, it is not possible to separate services billed by physicians and nonphysicians. The data reveal a gradual upward trend in assignment rates since FY Exhibit 3 National Assignment Rates, Fiscal Years 1972– 1987a Fiscal year

Physician and nonphysician

Physician only

1972 1973 1974

50.5% 50.5 49.1

NA NA NA

1975 1976 1977

49.0 49.0 49.3

NA NA NA

1978 1979 1980

50.6 51.6 52.6

NA NA NA

1981 1982 1983

54.1 55.0 56.3

NA NA NA

1984 1985 1986

57.9 67.4 69.5

NA 65.5% 66.4

1987– 1st quarter 1987–2nd quarter

70.0 72.8

67.2 70.0

a

b

See Note 10 in text. Rates reflect covered charges for physician claims processed during the period (see Note 8 in text). NA = not available.

b


central U.S. and represent roughly 2.3 percent of Medicare physician spending. The ten states with the highest rates, while all but one are east of the Mississippi, are otherwise geographically dispersed. They represent about 19.7 percent of Medicare physician spending. The trend in state participation rates generally has been upward. Comparisons between the first and fourth periods and between the third and fourth periods show that, in all but eight and seven states, respectively, participation rates have increased. At the same time that the rates vary widely and generally are increasing, the pattern of participation rates among states has remained relatively stable over time. That is to say, a high state has tended to stay high and a low state, low.

114

HEALTH AFFAIRS | Summer 1987 10


1979, following a period of stability between FY 1972 and FY 1978. In FY 1985, the first year of the participation program, the rate took a dramatic leap of 9.5 percentage points or 16.4 percent, from 57.9 percent to 67.4 percent. Some portion of the increase can be explained by a provision of DEFRA, taking effect July 1, 1984, that mandated assignment for clinical laboratory services furnished by independent laboratories. While other factors may also have contributed, it is our judgment that a significant portion of the increase in the assignment rate is an effect of the physician participation program itself. We suspect that some physicians who had high assignment rates prior to the program signed participation agreements and now accept assignment on all services. In addition, nonparticipating physicians may be accepting assignment more frequently in response to competition introduced by participating physicians. The assignment rate has continued to rise since FY 1985, reaching 69.5 percent in FY 1986, 70.0 percent in the first quarter of FY 1987, and a historic high of 72.8 percent in the second quarter, the latest period for which data are available. The assignment rates for physicians alone have also continued to rise since FY 1985. The rate increased from 65.5 percent in that year to 66.3 percent in FY 1986, and reached 70.0 percent in the first quarter of 1987. As before, some of this increase may be attributable to a statutory change, this one effective January 1, 1987, mandating assignment for services performed in physicians’ office laboratories. Data not shown here on Medicare-covered charges of physicians and nonphysicians combined indicate that all states experienced an increase in assignment rates between FY 1984, the year before the participation program, and FY 1985, the first year of the participation program. In FY 1984, thirteen states had assignment rates below 40 percent; in FY 1985, the number of states dropped to five. At the other end of the spectrum, four states had assignment rates above 80 percent in FY 1984, compared to eight in FY 1985. Between fiscal years 1984 and 1985, assignment rates in five states increased by over 40 percent, and in another twenty states by 20 to 40 percent. Only eleven states showed increases of less than 10 percent in their assignment rates, and over half of these were states with high assignment rates prior to the participation program. Exhibit 4 shows that assignment rates based on Medicare-covered physician charges have generally remained at least at the levels they reached during the first participation period, and in a number of cases have increased further. Thirty-three states and the District of Columbia showed higher physician assignment rates in the third participation period than in the first. When the fourth participation period is compared to the first, forty-seven states show increases. Forty-six states experienced increases between the third and fourth participation periods. Again, a possible seasonal effect may apply here.

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Exhibit 4 Physician Assignment Rates By Statea Oct. ‘84–Sept. ‘85

Oct. ‘85–Mar. ‘86b

Apr. ’86–Dec. ’86b

Jan. ‘87–Mar. ‘87c

National

65.5%

65.7%

67.1%

70.0%

New England Maine New Hampshire Vermont Massachusettsd Rhode Island Connecticut

81.5 56.5 64.3 93.7 94.0 57.6

79.6 55.2 63.6 94.7 94.1 53.9

80.6 54.9 65.2 97.2 94.6 58.2

84.7 58.7 70.2 98.1 95.0 59.8

Middle Atlantic New York New Jersey Pennsylvania

70.3 62.3 88.1

70.9 62.6 88.9

72.3 62.0 90.1

72.6 63.0 89.7

East North Central Ohio Indiana Illinois Michigan Wisconsin

50.8 49.6 51.7 88.2 51.7

49.6 53.6 54.3 88.0 51.4

51.5 55.5 55.7 88.3 50.3

57.8 57.6 59.0 89.3 56.6

West North Central Minnesota Iowa Missouri No. Dakota So. Dakota Nebraska Kansas

30.6 46.9 50.1 3O.5 18.7 47.3 72.7

32.0 46.9 52.0 29.7 19.0 33.8 74.0

33.1 47.7 55.1 28.6 21.3 32.6 73.2

40.2 53.4 60.6 38.9 27.5 42.4 78.4

South Atlantic Delaware Maryland Dist. of Col. Virginia West Virginia No. Carolina So. Carolina Georgia Florida

81.8 81.6 78.1 66.4 66.7 60.3 64.9 63.9 62.2

79.3 81.5 77.6 67.8 68.5 60.6 70.2 64.3 64.3

80.1 83.7 79.5 69.5 70.4 61.7 70.3 65.5 64.9

80.7 83.8 76.6 72.8 77.1 64.6 67.8 67.0

East South Central Kentucky Tennessee Alabama Mississippi

50.3 55.6 74.6 63.5

53.2 56.8 75.3 66.1

54.9 59.6 76.3 68.6

62.6 64.8 81.9 72.9

West South Central Arkansas Louisiana Oklahoma Texas

72.6 51.0 39.0 63.0

74.5 56.8 38.7 60.2

76.1 60.5 41.5 62.0

80.5 66.8 46.2 66.1

Mountain Montana Idaho Wyoming Colorado New Mexico Arizona Utah Nevada

42.6 25.2 33.8 56.0 58.3 52.8 63.1 81.6

39.1 25.7 34.7 53.2 58.1 52.9 60.8 82.6

38.2 24.7 28.0 53.3 61.2 50.3 62.7 84.1

42.2 24.2 29.9 55.5 56.6 56.4 66.5 86.4



116 HEALTH AFFAIRS | Summer 1987 Exhibit 4 Physician Assignment Rates By Statea (cont.) Oct. ‘84–Sept. ‘85

Oct. ‘85–Mar. ‘86 b

Apr. ‘86–Dec. ‘80 b

Jan. ‘87–Mar. ‘87

Pacific Washington Oregon California Alaska Hawaii

45.4 38.7 71.3 54.4 61.2

46.6 40.7 69.0 55.1 62.9

49.4 42.0 70.8 56.8 66.5

49.1 45.6 73.4 64.0 71.8

c

a

In instances in which carrier jurisdictions do not coincide with state boundaries, carrier rates were converted to state rates by calculating weights for the relevant counties based on their respective shares of total 1983 Medicare physician spending for physicians’ services in the state and determining a weighted average rate. Rates reflect covered charges for physician claims processed during the period. b The actual participation period was May through December 1986, and the participation agreements were in effect for that time. c The actual participation period is January through December 1987, and the participation agreements are in effect for that time. Data from the quarter January through March 1987 are the latest available. d Massachusetts enacted a Medicare mandatory assignment provision, effective April 1986. The fact that the assignment rates shown here are not 100 percent may be explained by the inclusion in the database of billings by practitioners other than allopathic and osteopathic physicians, which are included in the Medicare statutory definition of “physician” (see Note 7 in text).

Despite generally high and sustained physician assignment rates, twenty states (accounting for roughly 25 percent of Medicare physician spending) had assignment rates of 60 percent or less in the first quarter of 1987, compared to the national average rate in that period of 70.0 percent. Ten of these twenty states (representing about 7 percent of physician spending) had assignment rates of 50 percent or less, and four of these ten states (accounting for less than 1 percent of physician spending) had rates of 40 percent or less. Exhibit 5 shows the national distribution of Medicare-covered physician charges, according to physician participation status and assignment status of the claim for nonparticipating physicians. During the first quarter of 1987, participating physicians accounted for 43.7 percent of covered charges. Nonparticipating physicians accounted for the other 56.3 percent, of which 26.3 percentage points were attributable to assigned claims and 30.0 percentage points to unassigned claims. Thus, over one-quarter of all Medicare-covered physician charges are attributable to the assigned claims of nonparticipating physicians, and the assignment rate among such physicians is 46.7 percent. Combining the participation rate with the assigned services of nonparticipating physicians, the overall physician assignment rate in this quarter was 70.0 percent. The 5.0 percentage point increase in participating physicians’ share of covered charges in the first quarter of 1987 is coincident with reductions in the shares of both assigned and unassigned claims of nonparticipating physicians. This result is difficult to interpret. One might have anticipated, as a consequence of the statutory change mandating assignment for physicians’ office laboratories, a drop in the percentage in the



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Exhibit 5 Distribution Of Covered Charges For Services Billed, By Participation Status Of Physician And Assignment Status Of Claim a Nonparticipants To t a l

Participants

Assigned

Unassigned

Oct. ‘84–Sept. ‘85 Oct. ‘85–Mar. ‘86 b Apr. ‘86–Dec. ‘86 Jan..‘87–Mar. ‘87’

100.0% 100.0 100.0 100.0

36.0% 36.3 38.7 43.7

29.5% 29.4 28.4 26.3

34.5% 34.3 32.9 30.0

a

Rates reflect covered charges for physician claims processed during the period. Data for up to seven carriers missing from various quarters. b The actual participation period was May through December 1986, and the participation agreements were in effect for that time. c The actual participation period is January through December 1987, and the participation agreements are in effect for that time. Data from the quarter January through March 1987 are the latest available.

“unassigned” column of Exhibit 5 as these claims moved to the “assigned” column. The somewhat unexpected decrease in the share of total covered charges represented by nonparticipating physicians’ assigned claims, along with the 5.0 percentage point increase in the figure for participating physicians, might reflect a decision by physicians who formerly accepted assignment as a general rule to sign participation agreements. This assumes no significant shifts in the volume or mix of services among the three categories of physicians, and no seasonal effects. Conclusion The physician participation program has altered the profile of Medicare significantly. Under the program, beneficiaries can identify, before they receive services, those physicians who have agreed to accept assignment all the time. In this sense, the program has contributed a degree of security to a situation often characterized by uncertainty and has improved beneficiaries’ ability to make informed choices. The percentage of physicians signing agreements has remained relatively stable since the first participation period. However, the share of total physician billings accounted for by participating physicians has grown, both in absolute terms and relative to the percentage of physicians who participate. Thus, the participation program has reduced beneficiary uncertainty about, and increased beneficiary protection against, financial exposure. Nevertheless, participation rates vary widely from state to state, meaning that beneficiary protection against financial uncertainty is geographically uneven. The national assignment rate in the past few years has risen to historic levels, with the result that unassigned claims accounted for only 30 percent of total Medicare-covered physician charges in the first quarter


Time period

118


This article reflects the views of the authors and not necessarily the views of the Health Care Financing Administration or the Department of Health and Human Services.


of 1987. Like participation rates, assignment rates vary considerably across states, with ten states showing assignment rates of less than 50 percent. As before, this suggests uneven beneficiary financial protection. While its specific contribution to the increase in assignment rates is difficult to isolate, it is our judgment that the participation program has played a significant role. Although the upward trend in assignment dates to the early 1980s and other factors may have made a contribution, the magnitude of the increase at precisely the time of the participation program’s introduction suggests to us that a relationship exists. Three parameters define beneficiary exposure to out-of-pocket costs: the frequency with which claims are not accepted on an assigned basis; the average reduction on unassigned claims (that is, the excess of the submitted charge over the approved charge); and total physicians’ charges. It is possible to estimate the extent to which increases in the assignment rate observed since the participation program began have reduced beneficiary financial exposure. The increase in the assignment rate between FY 1984 and FY 1986 (11.6 percentage points), multiplied by the total FY 1986 claims volume (273 million) and the FY 1986 average reduction per unassigned claim ($33.15), translates into a reduc11 tion in beneficiary out-of-pocket costs of roughly $1 billion in FY 1986. Making the assumption that only one-quarter of the increase in assignment is attributable to the participation program, a reduction of about $250 million in beneficiary out-of-pocket expenses was achieved for less than $10 million, the approximate annual marginal administrative cost of the participation program. However, the savings to beneficiaries may be overstated to the extent that they are offset by any increases in volume and changes in the mix of services that have occurred as a result of the participation program itself. Studies suggest that a variety of factors may be important in physicians’ decisions to accept assignment in Medicare and to participate in private insurance programs. Ongoing research sponsored by the Health Care Financing Administration is examining the effect of payment levels, as well as other variables, on physicians’ Medicare participation decisions. To the extent that payment levels are an important determinant of participation in Medicare, proposals to alter Medicare reimbursement must be evaluated in light of their potential impact on participation, assignment, and beneficiary financial exposure.

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NOTES


1. A participation agreement applies. to all physicians using the same Medicare billing number. Suppliers can also enter into participation agreements. 2. Once the enrollment period ends, only a physician new to the area or newly licensed has the opportunity to enter into an agreement before the next annual enrollment period begins. 3. OBRA-86, imposed limits on the rate of increase in nonparticipating physicians’ actual charges. The maximum allowable actual charge (MAAC) for each procedure for a given nonparticipating physician is based on the relationship between the physicians’ actual charge for the service during the base period (April through June 1984) and 115 percent of the current prevailing charge for nonparticipating physicians. Physicians whose base period charges fall below this threshold can raise their actual charges by increments over four years, until they reach 115 percent of the 1990 prevailing charges for nonparticipating physicians. Physicians whose actual charges are at or above the threshold may raise their charges by 1 percent each year. Penalties for violations for the MAAC provision are the same as those applied to violations of the earlier freeze on actual charges– civil money penalties and/ or exclusion from the Medicare program. 4. On May 1, 1986, the maximum allowable prevailing charges applied to participating physicians were increased by 4.15 percent, while those applied to nonparticipating physicians remained frozen. This translated into prevailing charges for nonparticipating physicians that were 96 percent (1/ 1.0415) of those applied to participating physicians. OBRA86 fixed this 4 percent differential in statute permanently. 5. Directories are distributed free of charge to beneficiaries upon request and to senior citizen organizations, and are available for reference in Social Security and carrier offices. 6. OBRA-86 includes an additional information requirement. A nonparticipating physician who performs elective surgery and charges at least $500 for the service must inform the beneficiary, before the service is rendered, of the actual charge, the estimated Medicare payment, and the estimated out-of-pocket costs to the beneficiary. Physicians who fail to do so may be subject to civil money penalties and/ or exclusion from the program. 7. Participation rates based on agreements signed reflect the number of physicians who are participating in at least one practice setting. For example, a physician who is participating in private solo practice but not in the physicians’ group practice is counted as participating. Also, the definition of physician that these counts reflect is the statutory definition of physician, which includes allopathic and osteopathic physicians, chiropractors, podiatrists, optometrists, and oral surgeons. The counts also include other practitioners such as audiologists, psychologists, and physical therapists. 8. References to Medicare-covered physician charges reflect the statutory definition of physician. Billings of other practitioners are not included. Covered charges reflect submitted charges for Medicare covered services and exclude charges for services denied for any reason. Physician charges refer to both physician and nonphysician services billed by physicians. 9. Because data on covered charges are collected quarterly, it was not possible to compute the precise participation and assignment rates for the participation period May–December 1986. The rates for this period were approximated using data from the three quarters in the period April–December 1986. If anything, this should understate the true rate, since one month of frozen payments is included in a period during which payments to participating physicians were actually increased. Data from the two quarters between October 1985 and March 1986 were used to approximate the rates during October 1985– April 1986. 10. To make the assignment rates for years through FY 1984 comparable to the rates in later

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fiscal years, the gross assignment rate for the earlier years– that is, the rate that reflects 1554 billings as well as 1500s–is presented here. Form 1554, used before October 1, 1983 for hospital-based physicians’ services, was eliminated effective for services rendered beginning October 1, 1983. Thereafter, the services of these physicians were billed on the Form 1500, the same form used by other physicians. Previously, the net assignment rate (that is, net of 1554s), has generally been used for the earlier years. 1. Alternatively, the savings to beneficiaries can be approximated in this way. FY 1986 Medicare-approved charges for physician billings can be estimated by inflating Medicare physician spending to account for beneficiary coinsurance and deductibles. Approved charges can then be converted to submitted charges by applying the ratio of submitted to approved charges. Multiplying this figure by the change in the assignment rate yields the approximate FY 1986 savings to beneficiaries of $900 million.