Physician pricing and health insurance reimbursement

This study was based on physician claims records from three Blue Shield Plans. The principal results are: • Physicians are income-motivated. This means that income incentives can be incorporated into reimbursement systems to achieve specific ends, and that care should be taken to assure that new mechanisms do not create income incentives for physicians to act contrary to policy objectives. • Physician pricing is reasonably competitive. • Physicians do not discriminate in price in their private lines of business, but they appear to discriminate between Medicare and the private lines. Allowance caps in the minor lines of business have no appreciable impact on charge levels or the rate of charge inflation. • The Economic Stabilization Program significantly slowed the growth rate of Medicare charges, but had no discernible effect on the inflation rate of private charges. This indicates that allowance controls applied to a large part, but not all, of physicians' business induce physicians to "shift costs" against patients insured by programs where allowances are not controlled. • The tests conducted indicate that pursuit of a target net income is not a pervasive characteristic of physicians' economic goal behavior. Therefore, reimbursement controls on utilization to counteract demand inducement are not justified at this time. However, in view of the large increase in physician supply expected over the next decade, the issue of demand inducement merits continued monitoring. • Physicians are significantly more likely to participate in Plans' eligible business when allowances are high rather than low. Physicians of low-perceived quality are also significantly more likely to participate than physicians of high-perceived quality. Since increases in allowances raise insurance benefit costs, it follows