Toward a physician payment policy: Evidence from the Economic Stabilization Program

Concern over the rising cost of medical care has focused policy attention on methods of paying physicians. Unfortunately, limits placed on fees paid by public medical care financing programs, Medicare and Medicaid, adversely affect those programs' primary objective: making office-based physicians' services available to the poor and the elderly at affordable prices. This suggests that a second policy instrument, controls on physicians' private charges, may be needed. The Economic Stabilization Program (ESP) provides the only recent U.S. experience with a system which constrained both physicians' private charges and public payments. Using Medicare and Medicaid claims data for a large sample of California physicians, we simulate what physicians' private charges and supplies of services to Medicare assignment and Medicaid patients would have been in the absence of ESP. The simulations suggest that without ESP, private charges would have been higher and the quantities of services provided to poor and elderly patients lower than were actually observed. We believe, therefore, that the ESP experience supports the argument that controls over both public and private fees are needed in order to simultaneously contain costs of and maintain access to physicians' services by Medicare and Medicaid beneficiaries.The research for this paper was supported by Contract No. 600-76-0054 from the Social Security Administration, USDHEW. We wish to thank our colleagues Judith Feder, John Holahan, William Scanlon, and Judith Wagner for their helpful comments. James Bluck provided excellent research assistance. The findings and opinions expressed in this paper are solely those of the authors, and do not necessarily reflect the positions of either The Urban Institute or The Department of Health, Education, and Welfare.