US Physicians' Treatment Responses To Medicare Reimbursement Changes Varies By Geographic Region

From The New England Journal Of Medicine, "Geographic Variation in Physicians' Responses to a Reimbursement Change" by Mireille Jacobson, Ph.D., Craig C. Earle, M.D., and Joseph P. Newhouse, Ph.D.:

We studied the variation in geographic response to a major reform of Medicare's reimbursement system for physician-administered drugs (Part B), the vast majority of which are chemotherapy agents.

On January 1, 2005, Medicare instituted an average sales price (ASP) payment system for physician-administered drugs, setting reimbursement at the national average of manufacturers' sales prices from two earlier quarters plus a 6% margin.
*** the new ASP system reduced profit margins substantially for many chemotherapy-drug manufacturers. In one extreme case, that of paclitaxel, a drug commonly used to treat lung cancer, standardized monthly reimbursements decreased by a factor of 10 when the ASP system took effect. Physicians responded to this change by increasing the rate of chemotherapy treatment for patients with lung cancer, with the increase concentrated in treatment given by office-based oncologists.2 Rates of chemotherapy treatment increased by more than 10%, or about 2 percentage points, within 30 days after a diagnosis of lung cancer and by almost 4 percentage points within 180 days.***Oncologists' response to the payment change varied markedly across states (see graph), with some states increasing treatment rates by more than 4 percentage points within 30 days after diagnosis and a few actually reducing treatment rates. A small part of the variation is random, as shown by the upper limit of the 95% confidence interval in the graph, but the great bulk of it is real; we can reject the null hypothesis that the change in chemotherapy treatment was the same across states (P<.001).***First, to the long-standing question of why physicians practice medicine differently in different geographic areas, we can add the question of why their responses to a change in reimbursement are so geographically clustered. It may not be surprising that a physician with large, unpaid debts for, say, education loans might respond to a fee cut differently from a physician who is near retirement and has paid off any education loans, has paid for his children's college education, and has no mortgage on his residence — but physicians of both types are found in every state. Even more puzzling is why oncologists in Minnesota responded by increasing chemotherapy rates much more than those in California or why oncologists in New Hampshire and Connecticut responded by substantially increasing chemotherapy rates, while those in Rhode Island responded by increasing them only slightly and those in Massachusetts responded by decreasing them, albeit slightly.