Physician Fee Levels: Medicare Versus Canada

W. Pete Welch, Ph.D., Steven J. Katz, M.D., Stephen Zuckerman, Ph.D.

Adjusted for differences in purchasing fee levels and how they are adjusted over power and practice expenses, Canadian time that is likely to be the single most Im­ physician fees are, on average, 59 percent portant issue faced under the Medicare of Medicare fees. The general perception fee schedule. that Medicare fees are low is the result of Thus far, assessment of the appropri­ comparison with U.S. private fees, not to ateness of Medicare payment rates has the much lower Canadian fees. In the con­ been confined to comparisons with rates text of the current U.S. health care sys· paid by private insurers in the United tem, lowering Medicare fees to Canadian States (Physician Payment Review Com­ levels could jeopardize access to care by mission, 1992c). Because private rates are Medicare beneficiaries. However, if all higher, the comparison raises concerns payers used the same fee schedule, fees that the elderly's access to care could be that differed substantially from those cur· impaired if physicians prefer to treat pa­ rently used by private insurers might be tients covered by private insurance rather viable. than Medicare enrollees. The experience of the Medicaid program, whose rates are INTRODUCTION substantially lower than private insurance The new Medicare fee schedule, a ma­ rates, is an example of how low physician jor reform of physician payment in the fees can restrict access to care within the United States, has accomplished two U.S. health care system (Holahan, Wade, goals. First, by incorporating a resource· and Gates, 1992). Of course, given Medi­ based relative value scale (RBRVS), it par· care's larger share of physician revenues, !Iaiiy corrects historical inequities in pay­ physicians might respond differently to ment for procedure and cognitive serv· low Medicare fees than they do to low Ices. Second, by reducing these inequi­ Medicaid fees. ties, it focuses debates over Medicare Fees under private insurance are not fees on the overall generosity of pay­ the only reasonable source of compari­ ments, both now and in the future. Al­ son. Physician fees in other countries though the relative values may be revised may be just as appropriate a "bench­ and the extent of geographic equity is mark." Canada is an obvious source for sometimes questioned, it is the overall comparison for several reasons beyond its geographic proximity to the United States. First, physicians in both countries Support for this research was provided by the Health Care Fl· nancing Administration to The Urban Institute through Cooper­ are generally paid on a fee-for-service ba­ ative Agreement Number 99-C-98526 to the Brandeis University sis. Second, although the negotiations Health Polley Research Consortium. W. Pete Welch and Stephen Zuckerman are with the Urban Institute, Steven J. between the provincial medical associa­ Katz is with the University of Michigan. Any opinions ex­ tions and the governments are not di­ pressed are those of the authors and not The Urban Institute, University of Michigan, or their sponsors. rectly analogous to Medicare, they result

Health Care Financing RevlewiSpring 1993/volume14,Number3 41 in fee schedules that are generally similar METHODS to Medicare's structure. Third, the Cana­ dian health care system has been sug­ To compare fees, we developed In­ gested by some as a solution to the prob­ dexes that are weighted averages of fees lems of the U.S. system. Finally, Canadian in Canada relative to those paid under fees are established in a single-payer con­ Medicare. Although our prlmary objective text and, as such, provide a useful con­ is aggregate comparisons of relative fees, trast to Medicare, which is forced to oper­ we also compare fees disaggregated by ate in a market with private insurers. In type of service. For this we need to define this sense, Canadian fees suggest what the unit of Medicare services, select ser­ U.S. fees might be under a system in vices, and ensure comparability of Cana­ which all payers adhered to the same rate dian and Medicare fees. Ensuring compa­ schedule. rability involves addressing differences In In spite of these reasons, few coding systems, payment rules, and eco­ Canadian-U.S. comparisons of physician nomic conditions. fees have been made. The present study Our basic unit of observation is the fills a void by comparing the physician Common Procedural Terminology (CPT) fees paid by Medicare to those paid by code. Although CPT codes are used by Canadian provinces. In addition to com­ most payers In the United States, each paring physician fees In the aggregate, Canadian province has Its own coding we compare fees by type of service. system. Because of the difficulty of iden­ One of the few contributions in this tifying Canadian provincial codes that are area Is by Fuchs and Hahn (1990), who equivalent to CPT codes, II was not feasi­ compared fee levels in the two countries. ble to work with all the CPT codes and all Beyond the Medicare focus, the methods the provinces. We therefore focused on employed in this study extend the work fees in the four largest provinces, which by Fuchs and Hahn in two respects. First, together have 83 percent of the Canadian we use fees from the four largest Cana­ population. In order of population size, dian provinces, whereas Fuchs and Hahn they are Ontario, Quebec, British Colum­ used fees from a single small province bia, and Alberta (Manitoba) adjusted to represent all of Selection of Codes and Construction of Canada Second, our U.S. fees are consis­ Index tently derived from a single source the Medicare fee schedule. Fuchs and Hahn We classified CPT codes by type of ser­ combined data from Health Insurance vice to help ensure that the selected Association of America and Blue Shield codes were representative of a wide plans in Iowa and California and treated range of services and to allow us to com­ this as representative of the country as a pare fees at a somewhat disaggregated whole. In light of the weakness of their level. In particular, we employed a type-of­ underlying fee data, and given the Intro­ service classification system deviSed by duction of the Medicare fee schedule, the Berenson and Holahan (1992). The sys­ Issue of relative fees across the two coun­ tem divides physician services into 6 tries needs to be revisited. (major) categories and 23 subcategories.

42 Health Care Financing Review/Spring 1993/volume 14, Number3 Evaluation and management services Within the procedure and Imaging sub­ comprise the first category. Its subcate· categories, we selected the eight CPT gorles are office visits, hospital visits, codes with the greatest share of Medi­ emergency room services, home and care expenditures for each type of ser­ nursing home visits, consultations, and vice. (These expenditure shares also specialist evaluation and management serve as weights in the index, as noted services. The last subcategory In this later.) A CPT code's Medicare expendi­ group Includes services provided by oph· ture was calculated as Its volume In 1989 thalmologlsts, psychiatrists, patholo· times its relative value units (RVUs) In the gists, and allergists. new Medicare fee schedule. A code's ex­ Procedures, the second category, in· penditure divided by the expenditure for eludes major procedures (subdivided Into all services yields the code's expenditure cardiovascular, orthopedic, and other), share. CPT codes with high volumes are ambulatory procedures (subdivided Into more likely to be represented than codes eye and other), and minor procedures with low volumes, and CPT codes with (subdivided into endoscopic, oncology high fees (and RVUs) are more likely to be procedures, dialysis services, and other). represented than codes with low fees. Imaging, the third category, Is divided Into One might be concerned that our selec­ standard Imaging (routine X-rays and nu· tion procedure Is biased toward selecting clear medicine), advanced imaging (com· CPT codes with high Medicare fees (and puterized tomography (CT] scans and RVUs). To test this, we replaced Medicare magnetic resonance imaging [MRID, so· fees with Ontario fees in calculating ex­ nographlc imaging, and Imaging proce· penditure shares. Viliually the same CPT dures (largely cardiac catheterization). codes would be selected under the two The remaining three categories are tests methods. (subdivided into laboratory and other), an· Within the other subcategories (i.e., esthesiology services, and other services. evaluation and management), we se­ Of the Berenson and Holahan group· lected CPT codes by group: the 10 codes lngs, three categories and three subcate· for office visits, the 6 codes for hospital gories were dropped for this analysis. An· visits, the 5 codes for emergency room estheslology services were dropped visits, the 3 codes for subsequent nursing because In some fee schedules payment facility care visits, the 3 codes for rest varies by the duration of the procedure, home visits for established patients, the 4 making pricing difficult. Laboratory tests, codes for eye exams, the 2 codes for psy­ other tests, and "other services" were chotherapy, and the 5 codes for office dropped because of the difficulty of lden· consultations. Both initial and followup tllying equivalent Canadian codes. Oncol­ visit codes were included (Table 1). ogy services were dropped because they The CPT codes incorporated in this in­ are often included In Canadian global dex represent 63 percent of the RVUs in hospital budgets and cannot, therefore, these 17 subcategories. Within each of be separately priced. Dialysis services the three categories, this expenditure were dropped because of problematic share Is 83 percent for evaluation and Medicare data on volume. This left 17 sub­ management services, 43 percent for pro­ categolies in 3 categories. cedures, and 35 percent for Imaging

Health Care Financing AevlewiSprlng 19931volume 14, Number 3 43 (Table 2). The expenditure share within We first calculated an index for each type· subcategories ranges from about 90 per· of-service subcategory. This index Is a cent for several evaluation and manage­ weighted average of Canadian fees rela· ment subcategories to about 20 percent live to Medicare fees for selected codes for ambulatory and minor procedures in each type subcategory. For cardiovas­ (Table 3). In general, as the number of po­ cular procedures, for example, this in· tential CPTs Increases and their diversity volved averaging relative fees for eight grows, the share of RVUs accounted for codes. Each relative fee was weighted by by the index CPTs tends to fall. its Medicare expenditure share within its To compare Canadian and Medicare subcategory, the same variable used to fees, we used an index based on a fixed select the codes. Our composite index set of services (I.e., Laspeyres index). This across all17 subcategories was also a La· widely used Index form is the basis of, for speyres index. This Index is the weighted example, the U.S. Consumer Price Index. average of each of the individual La· Table 1 Canadian and Medicare Fees for Selected Current Procedural Terminology (CPT) Codes, by Type-of-Service Subcategories: January 1992 Fee Canadian-to- CPT Adjusted Unadjusted Medicare Type of Service1 Code Description Canadian2 Medicare Ratio Evaluation and Management Services Office Visits 99213 Office visit, established $25.27 $31.00 0.82 patient Hospital Visits 99232 Subsequent hospital care 14.97 44.95 0.33 Emergency Room Services 99283 Emergency room visit 22.02 46.19 0.48 Nursing Home and Home 99332 Rest home visit, established 14.72 39.06 0.38 Health patient Specialty-Specific Evaluation 92014 Eye examination, established 32.74 53.01 0.82 and Management patient Consultations 99243 Office consultation 56.70 80.91 0.70

Procedures Cardiovascular Procedures 33512 Coronary artery bypass graft, 1,129.39 2,225.25 0.51 three grafts Orthopedic Procedures 27447 Total knee replacement 626.45 1815.73 0.35 Other Major Procedures 52601 Transurethral resection of 370A3 801.69 0.46 prostate Eye Procedures 66984 Remove cataract, insert lens 439.57 940.57 0.47 Other Ambulatory Procedures 49505 Inguinal hernia 252.70 335.43 0.75 Minor Procedures 17000 Destruction one facial lesion 28.78 35.65 0.81 Endoscopy Procedures 45378 Colonoscopy 156.84 262.89 0.60

Imaging Standard Imaging 71020 Chest X-ray, 2 views 6.11 10.54 0.58 Advanced Imaging 70450 Computerized tomography 32.24 42.16 0.76 scan, head without contrast material Sonography 93307 Echocardlography 45.40 54.25 0.84 Imaging Procedure 93547 Left hand catheter, coronary 271.24 434.01 0.62 angiography 1Within each evaluation and management subcategory, the middle level code Is shown. Within other subcategories, the code with the larg­ est Medicare expenditure Is shown. 2canadlan fees are the average of thefees(welghted by population) of the four largest provinces. Canadian fees have been adjusted for dif­ ferencesln currency (through purchasing-power parity), practice e~pense, global fee periods, and other aspects of the fee structures. SOURCES: (Ontario Ministry of Health, 1991; Quebec Ministry of Health, 1991; British Columbia Ministry of Health, 1991; British Columbia Medical Association, 1991; Alberta Ministry of Health, 1991; Federal Register, 1991).

44 Health Care Flnanclng Review/Spring 1993/volume 14, Number 3 Table 2 Physician Fee Indexes, by Major Type·of·Servlce (TOS) Categories and, by Province: United States and Canada, January 1992 Medicare Share 2 Within Canadian·to·Medlcare·Fee Ratio TOS 1 British Type of Servlce1 (Percent) Ontario Quebec Columbia Alberta canada Evaluation and Management Services 83 0.665 0.483 0.596 0.618 0.595 Procedures 43 0.578 0.415 0.516 0.584 0.528 Imaging 35 0.843 0.511 0.793 0.799 0.729 Overall 83 0.658 0.463 0.594 0.629 0.589 1Medicare snare Is the ratio of the expenditures of the codes used In the Index to the expenditures of all the codes In the TOS categoty. 2Canadlan fees are the average of the fees (weighted by population) of the four largest provinces. Canadian lees have been adjusted for dlf· ferences in currency (through purchasing power parity), practice expense, global fee periods, and other aspects of the tee structures. SOURCES:(Ontario Ministry of Health, 1991; Quebec Ministry of Health, 1991; British Columbia Ministry of Health, 1991; British Columbia Medical Association, 1991; Alberta Ministry of Health, 1991; FedeTaf Register, 1991). Table 3 Physician Fee Indexes, by Type·of·Servlce (TOS) Subcategories and, by Province: United States and Canada, January 1992 Share of Medicare Payments for TOS Canadian-to-Medicare-Fee Ratlo2 Reflected in lndex1 British Type of Service (Percent) Ontario Quebec Columbia Alberta canada Evaluation and Management SeiVlces Office Visits 91 0.941 0.570 0.697 0.661 0.762 Hospital Visits 84 0.404 0.385 0.406 0.491 0.408 Emergency Room Services 91 0.305 0.315 0.572 0.374 0.354 Nursing Home and Home Health 63 0.381 0.272 0.414 0.748 0.394 Specialty-Specific Evaluation and Management 52 0.689 0.548 0.708 0.784 0.659 Consultations 94 0.781 0.599 0.814 0.736 0.725

Procedures Cardiovascular Procedures 40 0.545 0.399 0.540 0.651 0.512 Orthopedic Procedures 63 0.395 0.338 0.389 0.362 0.373 Other Major Procedures 32 0.582 0.452 0.509 0.545 0.528 Eye Procedures 83 o.4n 0.396 0.555 0.521 0.468 Other Ambulatory Procedures 20 0.517 0.432 0.415 0.516 0.542 Minor Procedures 19 0.786 0.414 0.517 o.n4 0.833 Endoscopy Procedures 57 0.737 0.465 0.614 0.676 0.830

Imaging Standard Imaging 31 0.693 0.441 0.668 0.755 0.619 Advanced Imaging 36 1.046 0.788 1.064 "·a 0.953 Sonography 31 1.069 0.509 0.895 0.781 0.841 Imaging Procedure 51 0.688 0.374 0.652 0.750 0.594 1Medicare share is the ratio of the expenditures of the codes used in the inclex to the expenditures of all the codes in the TOS subcetegory. 2caneo:Uan fees are the average of the fees {weighted by population) of the four largest provinces. Canadian fees have been adjusted for dlf· ferences In currency{through purchasing power parity), practice expense, global fee periods, and other aspects ofthefee structures. SOURCES:{Ontario Ministry of Health, 1991; Quebec Ministry of Health, 1991; British Columbia Ministry of Health, 1991; British Columbia Medical Association, 1991; Alberia Ministry of Health, 1991; Federal Register, 1991).

Health Care Financing RevlewfSprlng 1993/voJume 14, Number3 45 speyres indexes, where the weights are a coionoscopy, depending on whether it the Medicare expenditure shares for the reaches the descending, transverse, or subcategory. ascending colon, whereas CPT has one Creating Comparable Fees code (45378), regardless of the distance. We used the Quebec code for a coiono­ The fees that we analyzed were those in scopy of the ascending colon, the most effect in January 1992, obtained from pub­ expensive. Only 2 CPT codes (both in the lished fee schedules (Ontario Ministry of minor procedure category) out of 126 had Health, 1991; Quebec Ministry of Health to be dropped because of difficulty in 1991; British Columbia Ministry of Health: identifying comparable codes. 1991; British Columbia Medical Associa­ Even after basic medical comparability tion, 1991; Alberta Ministry of Health, had been established, several issues re· 1991; Federal Register, 1991). In the case garding comparability in payment re· of Medicare, we assumed full implemen­ mained. Foremost among these related tation of the fee schedule. Medicare fees to the period of the global surgical fees. were treated as the product of the total Under the Medicare fee schedule, fees for RVU for the code and the conversion fac. major surgeries cover visits only 1 day tor of $31.001 (Federal Register, 1991). No prior to surgery but 90 days following sur· geographic adjustment was made. Cana­ gary. Provincial schedules usually have dian fees, as they appear in the sched­ longer preoperative periods but shorter ules, do not vary geographically. And the postoperative periods: Ontario has a geographic practice cost index of the postoperative period of 14 days; Quebec, Medicare fee schedule does not enter the 0 days (out of the hospital); British Colum· calculation when a national perspective is bia, 42 days; and Alberta, 90 days. Based used. For each code, the Canadian fee in part on a survey by the Physician Pay­ was calculated as the mean of the four ~ent Review Commission (1991b), we provincial fees, weighted by their 1990 JUdged that Medicare's 90-day postopera­ population (Canadian Almanac & Direc­ tive period would capture two more office tory, 1992). visits than Ontario, three more visits than Canadian codes comparable to the Quebec, and one more visit than British Medi_c~re codes were identified by the Columbia. To make Canadian surgical phys1c1an member of the analysis team fees comparable to Medicare fees, we (Katz). Although the coding systems dif· Identified the fee for these office visits to fer, the practice of medicine Is very simi· general surgeons and added it to the ca. lar in the two countries, making the task nadian fees for major surgeries. of identifying comparable Canadian For imaging CPT codes, we used fees codes relatively straightforward. Ambigu· for the professional component, except Illes typically were resolved through for Alberta For standard imaging and so­ phone conversations with the relevant nography, Alberta publishes only global ministry of health. In the remaining cases, fees. Therefore, its global fees were ad· we selected provincial codes that, if any· justed by multiplying them by the ratio of thing, made Canadian fees appear high. the Medicare professional component to For instance, Quebec has three codes for the global fee. Alberta publishes no physi­ cian fees for advanced Imaging, because 46 Health Care Financing RevlewiSprlng 1993/volu...., 14, No.nnber 3 it pays only hospitals for these services. prices of other goods (e.g., housing) do Thus, no comparison can be made. not. In the provincial schedules, evaluation Hence, cross-national comparisons of and management fees are nominally health care spending adjust for differ­ specialty-based. This relates to a major ences in the value of currencies using the difference in physicians In the United purchasing power parity (Fuchs and States and Canada: one-half of Canadian Hahn, 1990; Schieber, Poullier, and Green­ physicians are general practitioners (GPs) wald, 1991; Evans, 1988).1n 1990, one U.S. (Department of National Health and Wel­ dollar had the purchasing power of 1.31 fare, 1988), whereas only 14 percent of Canadian dollars (Organization for Eco· U.S. physicians are general practitioners nomic Cooperation and Development, or family practitioners (American Medical 1992). Suppose that Canadian physicians Association, 1990). Therefore, Canadian were paid In U.S. dollars, which they used fees for specialists are more relevant than to pay for practice expenses as well as those for GPs because of the predomi· personal consumption Items, such as nance of specialists in the United States. housing in Canada. They could receive In Canadian fee schedules, fees for Inter­ only one U.S. dollar for every 1.31 Cana­ nists are usually as high as or higher than dian dollars they now receive and still af· for other specialists. Therefore, we used ford the same practice expenses and the fees of internists, except where an· standard of living. Hence, Canadian fees other specialty was clearly more relevant must be divided by 1.31 to be translated (e.g., ophthalmologists for eye exams). Into U.S. dollar equivalents. What Is relevant to physician income, Net Income Equivalence however, Is not physicians' fees but their By how much would Medicare fees fees net of practice expenses. We wished drop if Medicare adopted the Canadian to adjust fees, therefore, so that they rep­ fee level, assuming that Medicare recog­ resent the same net Income per service in nized the differences In currency and the two countries. Canadian physicians practice expense? have substantially lower malpractice ex· Canadian fees are, of course, ex­ penses (Coyle, Dewees, and Trebilcock, pressed in Canadian dollars. These fees 1991) than U.S. physicians and lower ad· could be converted to U.S. dollars using mlnlstratlve expenses (Himmelstein and an exchange rate. However, foreign ex­ Woolhandler, 1991; U.S. General Account· change rates are heavily influenced by ex­ lng Office, 1991). Canadian physicians traneous factors, such as speculation and had expenses that were 38.7 percent of Interest rate differentials, which cause gross income in 1987, for example, the lat­ capital funds to shift among nations. est year for which such data are available These factors can result in substantial (Department of National Health and Wel­ year-to-year changes in exchange rates. fare, 1990). The analogous U.S. figure for In addition, the prices of goods that are 1987 is 45.8 percent (American Medical traded internationally have a direct lm· Association, 1988). pact on exchange rates, whereas the In other words, physicians retain as net Income 54.2 percent of their revenue in the United States but 61.3 percent of their

Heahh care Financing Review/Spring 1993/volume 14, Numbel'3 47 revenue In Canada For the purposes of ada is paying about one-half as much as this adjustment, we assume that practice Medicare for a three-graft CABG (0.51 in expenses as a percentage of a fee are the the table). same for all fees. In reality, the share of a The fee for removal of a cataract and in­ fee that is retained as net Income varies sertion of a lens is worth special mention. across services. If net Income per service In 1988, deeming this fee "overpriced," for physicians were equated In the two Medicare lowered the fee for this proce­ countries, this would mean that 54.2 per­ dure. The fee was lowered again In 1990 cent of U.S. fees would equal61.3 percent and 1991, and yet again under the Medi­ of Canadian fees. Therefore, to make a care fee schedule in 1992. Alter this pro­ valid comparison between the two coun­ cess, Canada is still paying less than one­ tries, Canadian fees need to be adjusted half as much as Medicare (0.47 in the upward to reflect the higher practice ex­ table). penses in the United States. This involves Table 2 presents the Index for all ser­ dividing Canadian fees by 0.884 vices for each province as well as the In­ (54.2/61.3). dex by category. Overall, Canadian fees Thus, we divided Canadian fees by 1.31 are 59 percent of Medicare's, adjusting to adjust for differences in purchasing for differences in currency, practice ex­ power and by 0.884 to adjust for practice pense, global fee periods, and other as­ expenses(1.31•0.884 = 1.158). pects of the fee structure. Ontario, British Columbia, and Alberta each have fees RESULTS that are about 60 percent of Medicare's, Table 1 presents Canadian and Medi­ whereas Quebec has fees that are less care fees for selected CPT codes. We use than one-half those of Medicare's. Que­ coronary artery bypass graft (CABG) with bec has the lowest fees within each of the three grafts to explain the construction three categories. underlying the figures in this table. The Canadian fees are 73 percent of Medi­ three-graft CABG has a weight of 0.22 (not care fees for imaging and 53 percent of shown); that is, it has 22 percent of the Medicare fees for procedures. Canadian Medicare expenditures for the eight fees for evaluation and management ser· codes used for the cardiovascular index. vices are 60 percent of Medicare fees, ap­ In January 1992, the average fee across proximately at the overall average. The or­ the four largest provinces was $1,278 (not der by type of service is the same for each shown). This figure, which is in Canadian province. For instance, the ratio of Que­ dollars, Includes postoperative office vis­ bec fees to Medicare fees is highest for Its that are covered by the global fee un­ imaging (51 percent), lowest for proce­ der Medicare. After adjustment for the dures (42 percent), and in the middle for lower purchasing power of the Canadian evaluation and management services (48 dollar and lower practice expenses, the percent). Canadian fee Is $1,129 (U.S. dollars). In Table 3 presents these results by sub· contrast, under full implementation of its categories. Within each category, there Is fee schedule, Medicare will be paying a range of indexes across subcategories. $2,225 for the same service. In sum, Can­ Within evaluation and management ser­ vices, for example, Canadian fees are

48 Heallh Care Financing Review/Spring 1993/volume 14, Number3 highest for office visits and consultations Review Commission, 1991a). Thus, Medi­ (76 and 73 percent of Medicare fees, re­ care's ability to control increases in fees spectively), and lowest for emergency is constrained by the payment behavior of room services and nursing home and other payers. home health visits (35 and 39 percent of Although fees as low as those in Can­ Medicare fees, respectively). Within pro­ ada may not be a realistic option for Medi­ cedures, Canadian fees are highest for care, they can provide general guidance minor procedures and endoscopy proce­ for broader payment reforms. In particu­ dures (63 percent of Medicare fees for lar, Canadian fees suggest that fees well both categories). Canadian fees for ortho­ below those currently paid in the United pedic procedures are 37 percent of Medi­ States might be feasible. For example, if care fees, by far the lowest percentage for the United States moved to a system un­ a procedure subcategory. Within imaging, der which all physician fees were paid ac­ fees are highest for advanced imaging cording to the same rate schedule (i.e., an (CT scan and MRI) and sonography (95 all-payer system), it would no longer be percent and 84 percent of Medicare fees, clear that fees should reflect those now respectively). Fees are lowest for stan­ paid by private insurers. Congressman dard imaging and imaging procedures Rostenkowski has introduced legislation (primarily cardiac catheterization) (about to move toward such an ali-payer system 60 percent of Medicare fees for both for the Nation, and several States have groups). mandated studies of this approach (Phy­ sician Payment Review Commission, DISCUSSION 1992c). With all payers governed by the same set of fees, the access risks faced Overall Fee Levels by patients covered by a single payer with Overall, Canadian fees are 59 percent of low fees would be removed. Policyma­ Medicare fees. Although Canadian fee kers might decide to set fees well below levels are high enough to attract physi­ the current private market, possibly using cians within Canada (as discussed late!), Medicare levels as the guide. The ques-· decreasing Medicare fees to Canadian tion then becomes not whether Medicare levels might prompt U.S. physicians to beneficiaries would risk reduced access refuse to treat Medicare beneficiaries in compared with holders of private insur­ favor of privately insured patients. The ex­ ance, but whether lowering U.S. fee levels perience of Medicaid illustrates the po­ would shrink the overall supply of physi­ tential problem for Medicare. Medicaid cian services to unacceptable levels. fees are, on average, 67 percent of Medi­ There is really no way to answer this care fees (Holahan, Wade, and Gates, question with certainty. However, despite 1992), and U.S. private insurance fees are having much lower fees, Canada has well above (150 percent of) Medicare fees about the same physician supply as the (Physician Payment Review Commission, United States: 2.2 physicians per 1,000 1992c). This creates an environment in population in Canada versus 2.3 in the which access to care for Medicaid benefi­ United States (Schieber, Poullier, and ciaries is threatened (Physician Payment Greenwald, 1991).1ndeed, many Canadian analysts and policymakers believe that

Health Care Financing Review/Spring 19931volume14, Number3 49 Canada has an oversupply of physicians and management, in comparison to pri­ (Barer and Stoddart, 1991). In January vate insurers (Physician Payment Review 1992, the provincial deputy ministers­ Commission, 1992b). This suggests that the key health pollcymakers In Canada­ Medicare fees were even more skewed to· decided to cut medical school enrollment ward procedures, relative to Canada, than (Mackie, 1992). In sum, Canada's supply were private insurers' fees. Our data lndl· of physicians does not appear to be inad· cate (Table 2) that the new fee schedule equate. has substantially shrunk this difference Would lower fees save money, orwould for Medicare. The Canada-Medicare fee physician service volume and intensity in· ratio of 60 percent for evaluation and man­ crease enough to wipe out any savings? agement is 1.13 times higher than the ra­ The possibility that lower fees might in· tio of 53 percent for procedures. The Phy· duce this type of response was raised siclan Payment Review Commission when the Medicare conversion factor was (1992a) has suggested changing the cal· set in late 1991. It was assumed that a 10. culation of practice expense in such a percent decrease in fees would be offset way that evaluation and management by a 5-percent increase in the volume and fees would increase further and proce­ Intensity of services. Even If the volume dure fees would decrease further. This and Intensity of all physician services In· would probably make the evaluation and creased to this extent, lowering the over· management procedure ratios for Medl· all levels of physician fees under an care and Canada even more similar. all-payer system would still be a promis­ The relative values of physician ser­ Ing cost-containment option. vices In Canada are not resource-based but rather reflect charge-based payments Levels by Type of Service established prior to 1968. Modifications in Here we compare differences in the the relative values have primarily been the Canada-Medicare ratio of fees by type of responsibility of physician organizations, service. Although neither Canadian nor with varying levels of provincial govern­ Medicare fees can be taken as a "gold ment oversight. Periodic fee increases standard," a comparison by type of ser­ have been disproportionately distributed vice can yield insights into fees under to the services of general practitioners. both systems. Thus, the relative value of services pro­ Fuchs and Hahn (1990) found a sub· vided by general practitioners has in· stantial difference between the Canada­ creased over time, which has partially cor· United States fee ratios for evaluation and reeled perceived historical inequities. management (55 percent) and for proce­ Our results suggest that this political dures (30 percent). These ratios suggest negotiating process between physicians that U.S. fees are 1.8 times higher relative and payers has resulted In a distribution to Canada's for evaluation and manage­ of relative values across cognitive and ment than for procedures. Prior to the In· procedural services similar to that of troductlon of the fee schedule, Medi· RBRVS. Canadian physicians have care's fees for procedures were more shown some Interest In the RBRVS as an generous than their fees for evaluation improvement overthelrcurrent fee sched· ules. However, to the extent that their

50 Health Care Financing Review/Sprlng1993/volume 14, Number3 concern is about overpaying for proce­ Within procedures, orthopedic proce­ dures relative to evaluation and manage­ dures stand out as a case In which the ment (York, 1992), the RBRVS is unlikely Medicare fee schedule has produced to help the provinces, because it still re­ higher fees relative to Canada's than sults In more generous payments for pro­ other procedures. Canadian fees for or­ cedures than the current Canadian sched­ thopedic procedures are 37 percent of ules (albeit less so than did the previous Medicare's, whereas Canada's are 53 per­ Medicare system). cent for procedures in general. Although Within evaluation and management It is possible that Canadian fees are "too services, the relative differences between low" to ensure access for orthopedic pro­ office and hospital visit fees In the two cedures, this is unlikely for two reasons. systems are striking. Relative to Medi­ First, the provinces have single-payer sys­ care, Canada pays more for office visits tems and these fees are for the key ser­ than hospital visits, a pattern that holds in vices provided by orthopedic surgeons. If each of the four provinces studied. The these fees were too low, shortages of or­ reason Is that the Medicare fee schedule thopedic surgeons could develop. In Can­ is resource-based as pertains to the work ada, shortage concerns tend to be related component only, not the overhead costs to geography, not specialty. However, and malpractice components. When the shortages by specialty have been identi­ RBRVS was established, setting relative fied (Barer and Stoddart, 1991), and ortho­ values for office and hospital visits en­ pedic surgery is not among them. Sec­ tailed allocating office expenses between ond, this pattern holds across provinces, the two activities. The provinces have im­ reducing the probability that a single plicitly allocated those expenses differ­ province "miscalculated." ently than Medicare has, assuming that Fees for advanced Imaging and sono­ fewer practice resources are used in hos­ graphy are high in Canada, relative to Me­ pital than in office visits. The Physician dicare's. Because these high-technology Payment Review Commission (1992d) has services have diffused more slowly In proposed a resource-based allocation of Canada, their fees have a smaller Impact practice expenses, which would increase on budgets. Alternatively, Canada may office visit fees and decrease hospital pay relatively more tor these services in visit fees. This would make the Canada­ order to avoid undersupply in light of the Medicare ratios more similar. constraints already placed on the num­ Still within evaluation and management bers of machines. The ratios here suggest services, Canadian consultation fees are that Canadian provinces might re-eval­ high relative to Medicare's. Conversely, uate whether their fees for advanced im­ Canadian fees for visits in emergency aging and sonography are too high, and rooms, nursing homes, and rest homes Medicare, whether their fees are too low. are low relative to Medicare's. As in the case of hospital visits, Medicare's high Limitations and Caveats fees for such visits may reflect an overty We adjusted our comparisons for two generous allocation of practice expenses. general factors: differences In purchas· Medicare may need to revisit this issue. ing power and differences in practice ex-

Health care Financing Review/Spring 19931volume 1~,NIIIIIber3 51 penses. Are there factors that could ac· 35-year career. The repayment would count for our results other than real fee amount to about about $5,000 per year, or level differences? One possible objection about 1.5 percent of current average Is that general and/or family practitioners gross practice revenues (American Medl· are much more common In Canada and cal Association, 1990). Obviously, earlier that we are really Identifying skill differ­ cohorts of physicians have substantially ences between Medicare and Canadian lower educational costs than are re­ physicians, rather than fee differences. flected in this example. With the assump­ This Is not the case, because we took tion of no differences In rates of service care in matching the codes to take spe­ provision, leaving out educational debt cialty into account. For evaluation and costs overstates the fee differential be­ management fees, for example, we tween the two countries by at most 1.5 matched general internists' fees in the percent. two countries. Several other caveats are worthy of Another possible limitation Is that, mention. First, the fee received by the even though we have fees from the four physician may be higher than the Medi­ provinces with five-sixths of the Canadian care fee schedule amount because of bal­ population, these fees are not representa­ ance billing, which does not exist in Can­ tive of the other six provinces, which ada. However, In 1992 physicians who could pay more generously. Canada's De· chose to balance bill could only charge 14 partment of National Health and Welfare percent above the fee schedule. If assign­ (1991) has computed fee indexes for the ment rates stay at 1991 levels, only about provinces and finds that the excluded 20 percent of Medicare charges would re­ provinces all have fee levels below those ceive this 14-percent add on. Therefore, of Ontario, British Columbia, and Alberta the total fee that the average physician re­ We estimated the change if these indexes ceives could be only 2 to 3 percent above were incorporated into our index and the Medicare fee schedule. This may found that the ratio of Canadian fees to cause us to overestimate the Canada­ Medicare fees would fall very slightly, 0.3 Medicare fee differential modestly-an of a percentage point. overestimate that is likely to be reduced Another potential problem in compar­ overtime because balance billing is being ing U.S. and Canadian physician fees is increasingly restricted under Medicare. the high educational debt of American Second, unlike Medicare, certain physicians: Among U.S. physicians with hospital-based radiology services in Can­ debts for their medical education, the av­ ada are paid for through global hospital erage debt in t990 was $46,224 (Hughes, budgets and are not, therefore, reflected BarKer, and Reynolds, 1991). We consider in the fee levels. The affected services an extreme example to provide a sense of vary by province: Alberta pays for all radi­ the Impact this might have on the fee dif· ology services delivered in hospitals ferentlal we estimated. Assume that Ca­ through the global budget, Ontario and nadian physicians had no debt and all British Columbia include such services U.S. physicians (regardless of cohort) had for inpatients but not for outpatients, and financed this average debt through loans Quebec includes services for neither carrying a 10-percent Interest rate over a group. Because hospitals pay physicians

52 Health Care Financing Review/Spring 1993/volume 14, Number3 directly, hospitals' payment rates are not physician·insurer negotiation on an directly captured by our index. To the ex· all-payer system. tent that those rates are similar to rates paid directly by the provinces, our index ACKNOWLEDGMENTS will reflect them accurately. There is no a The authors acknowledge Juhi Chawla priori reason to expect them to be sub­ and Dena Mitchell for research assist­ stantially higher or lower. ance, and the generous assistance of CONCLUSION members of the Canadian Provincial Min· lstries of Health. The ability of the Canadian provinces to keep fees below those in the United REFERENCES States is a reason for Canada's cost ad· Alberta Ministry of Health: Schedule of Benefits. vantage. Canadians have not generally re­ Galgary,Aiberta. April1991. sorted to policies such as utilization re· American Medical Association: Socioeconomic view that can limit clinical autonomy. Characteristics of Medical Practice 1988. Chi­ Instead, Canadians have limited spending cago. 1988. growth, in part, by restraining fees to a far American Medical Association: Physician Char­ greater extent than has yet appeared pos­ acteristics and Distribution In the U.S. Chicago. 1990. sible in the United States. Barer, M.L., and Stoddart, G.L: Toward Integrated The multiple·payer system operating in Medical Resource Policies for Canada. Back­ this country makes it difficult for any indi· ground document. Paper Number 91-7. Hamilton, vidual payer to limit fees without running Ontario. Centre for Health Economics and Policy the risk of adversely affecting Its subscrl· Analysis, McMaster University, July 1991. bers' access. This has forced many U.S. Berenson, R., and Holahan, J.: Sources of the Growth In Medicare Physician Expenditures. Jour· payers to seek controls over volume as nal of the American Medical Association the only available means of containing 267(5):687-691, February5,1992. outlays. Many physicians find these vol· British Columbia Medical Association: Guide to ume controls overly intrusive. However, Fees. Vancouver, British Columbia April1, 1991. with the charges for each service as high British Columbia Ministry of Health: Payment as they are in the United States, payers Schedule. Vancouver, British Columbia Apri/1, have a strong Incentive to confront the 1991. physician community and have turned to Canadian Almanac and Directory Publishing Com­ pany: Canadian Almanac & Directory 1992. To­ volume controls as a way to do it. Com· ronto, Ontarlo.1992. paring Medicare physician fees with Ca­ Coyte, P.C., Dewees, D.N., and Trebilcock, nada's physician fees suggests that there M.J.: Medical Malpractice-The canadian Experl· may be another alternative: lowering phy­ ence. New England Journal of Medicine 324(2):89­ sician fees in return for maintaining 93, January 1o, 1991. greater physician discretion over treat­ Department of National Health and Welfare: Health Personnel in Canada 1987. Ottawa, Onta· ment decisions. Ultimately, the potential rio. December 1988. tradeoff between reduced fees (or fee Department of National Health and Welfare: Earn­ growth) and utilization review policies Ings of Physicians and Dentists in Canada. Ot· could become a valuable focus of U.S. tawa, Ontario. November 1990.

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54 Health Cue Financing RevlewJSpring 19931volume14, Number 3