Medicare Fees and the Volume of Physicians' Services

This paper estimates the relationship between Medicare fees and quantities provided by physicians for eight specific services. It uses data for 13,707 physicians who responded to surveys in 2000/2001 and/or 2004/2005 and were linked to all Medicare claims for their Medicare patients. Results show that Medicare fees are positively related to quantity provided for all eight services, and are significantly different from zero and elastic for five of them. The findings are consistent with the general economic proposition that supply curves for medical services are positively sloped, and provide no evidence of volume-offset behavior for the services examined. These results also imply that Medicare could influence volume growth for specific services by varying their fee changes, and that uniform fee changes will have differential effects on service volume because of variation in underlying supply elasticities.