NCCI – saving the best for last – fee schedules and medical pricing

Frank Schmid had the honor of conducting the final report at the 2011 NCCI Annual Issues Symposium, and he was well worth the wait. Dr Schmid discussed physician fee schedules, price levels, and ‘price departure’.
Schmid reported not results, but “findings” related to a lot of really intriguing issues. To wit
– how do price and quantity change in response to changes in fee schedule?
– what is the rate of inflation in MD services?
– what is the difference between fee schedule and the actual prices paid, known as ‘price departure’.
– do physicians increase or decrease the quantity of services if a fee schedule declines? are these permanent changes? are they symmetric (reversing the fee schedule reverses the response)
Frank and his colleagues looked at the impact of FS changes on physician service categories and total physician services. I won’t get into the methodology – mostly because it’s way too complex for me to understand, much less describe. NCCi examined four states, FL GA MD and UT.
Florida’s fee schedule increased significantly in January of 2004. Interestingly, prices paid increased when the FS went up, but prices, which before had been about 5% less than FS, were about 10% less after the increase. (note this is consistent with internal data HSA has from payer files). This was even more noticeable with prices for physical medicine, where prices went from 7% below FS to about 25% below after reform. A couple years post-reform, prices actually rose.
The opposite occurred in Maryland, with prices paid actually increasing after the fee schedule was changed midway thru 2004.
Schmid broke this down by actual types of service – evaluation and management codes, etc; the discussion of radiology in Florida was particularly interesting, as Schmid noted that “not only do prices respond to fee schedule changes, but fee schedules respond to price changes”.
There’s a lot of very useful, and interesting information here, and much more to come. I applaud NCCI for digging deep into the pricing and fee schedule issue, as my sense is there’s not near enough understanding of the inter-relationship between price and fee schedule. Future plans are to provide actual results across a score or more of states by the end of the year.
This is great stuff.