Physician fee levels: Medicare versus Canada

Health Care Financing Review, Spring, 1993 by W. Pete Welch, Steven J. Katz, Stephen Zuckerman

INTRODUCTION

The new Medicare fee schedule, a major reform of physician payment in the United States, has accomplished two goals. First, by incorporating a resource-based relative value scale (RBRVS), it partially corrects historical inequities in payment for procedure and cognitive services.. Second, by reducing these inequities, it focuses debates over Medicare fees on the overall generosity of payments, both now and in the future. Although the relative values may be revised and the extent of geographic equity is sometimes questioned, it is the overall fee levels and how they are adjusted over time that is likely to be the single most important issue faced under the Medicare fee schedule.

Thus far, assessment of the appropriateness of Medicare payment rates has been confined to comparisons with rates paid by private insurers in the United States (Physician Payment Review Commission, 1992c). Because private rates are higher, the comparison raises concerns that the elderly's access to care could be impaired if physicians prefer to treat patients covered by private insurance rather than Medicare enrollees. The experience of the Medicaid program, whose rates are substantially lower than private insurance rates, is an example of how low physician fees can restrict access to care within the U.S. health care system (Holahan, Wade, and Gates, 1992). Of course, given Medicare's larger share of physician revenues, physicians might respond differently to low Medicare fees than they do to low Medicaid fees.

Fees under private insurance are not the only reasonable source of comparison. Physician fees in other countries may be just as appropriate a "benchmark." Canada is an obvious source for comparison for several reasons beyond its geographic proximity to the United States. First, physicians in both countries are generally paid on a fee-for-service basis. Second, although the negotiations between the provincial medical associations and the governments are not directly analogous to Medicare, they result in fee schedules that are generally similar to Medicare's structure. Third, the Canadian health care system has been suggested by some as a solution to the problems of the U.S. system. Finally, Canadian fees are established in a single-payer context and, as such, provide a useful contrast to Medicare, which is forced to operate in a market with private insurers. In this sense, Canadian fees suggest what U.S. fees might be under a system in which all payers adhered to the same rate schedule.

In spite of these reasons, few Canadian-U.S. comparisons of physician fees have been made. The present study fills a void by comparing the physician fees paid by Medicare to those paid by Canadian provides. In addition to comparing physician fees in the aggregate, we compare fees by type of service.

One of the few contributions in this area is by Fuchs and Hahn (1990), who compared fee levels in the two countries. Beyond the Medicare focus, the methods employed in this study extend the work by Fuchs and Hahn in two respects. First, we use fees from the four largest Canadian provinces, whereas Fuchs and Hahn used fees from a single small province (Manitoba) adjusted to represent all of Canada. Second, our U.S. fees are consistently derived from a single source, the Medicare fee schedule. Fuchs and Hahn combined data from Health Insurance Association of America and Blue Shield plans in Iowa and California and treated this as representative of the country as a whole. In light of the weakness of their underlying fee data, and given the introduction of the Medicare fee schedule, the issue of relative fees across the two countries needs to be revisited.

METHODS

To compare fees, we developed indexes that are weighted averages of fees in Canada relative to those paid under Medicare. Although our primary objective is aggregate comparisons of relative fees, we also compare fees disaggregated by type of service. For this we need to define the unit of Medicare services, select services, and ensure comparability of Canadian and Medicare fees. Ensuring comparability involves addressing differences in coding systems, payment rules, and economic conditions.

Our basic unit of observation is the Common Procedural Terminology (CPT) code. Although CPT codes are used by most payers in the United States, each Canadian province has its own coding system. Because of the difficulty of identifying Canadian provincial codes that are equivalent to CPT codes, it was not feasible to work with all the CPT codes and all the provinces. We therefore focused on fees in the four largest provinces, which together have 83 percent of the Canadian population. In order of population size, they are Ontario, Quebec, British Columbia, and Alberta.

Selection of Codes and Construction of Index

We classified CPT codes by type of service to help ensure that the selected codes were representative of a wide range of services and to allow us to compare fees at a somewhat disaggregated level. In particular, we employed a type-of-service classification system devised by Berenson and Holahan (1992). The system divides physician services into 6 (major) categories and 23 subcategories.