Association for Public Policy Analysis & Management

For over a decade, Medicare costs both overall and per beneficiary have been growing. Meanwhile, the rate at which doctors are reimbursed for performing Medicare services has been declining in real dollars. As a result, many in the health community have hypothesized that doctors offset these declines by performing more Medicare services overall. However, we show that this is only part of the story.  By applying shift-share methods to Medicare Part B 5% Carrier Files from years 2000 to 2013, we decompose the percent growth of Medicare spending each year into the components of which it is comprised. In doing so, we find that quantity offsets were only a small driver of Medicare spending growth through most of the study period. Instead, we find that changes in service bundle intensity and modifier coding contribute a larger share to overall growth in all years, suggesting that intensity, rather than quantity, is the primary channel through which providers offset reimbursement cuts.