Packaging Physician Services: Alternative Approaches to Medicare Part B Reimbursement

More than a quarter of the rapid growth in physician expenditures since the advent of the Medicare program can be ascribed to greater service intensity, generally through unpackaging of physician services, procedure inflation, and the involvement of multiple physicians. One way to achieve effective cost control is to restrain prices and the number of services simultaneously through redefining the payment unit from a narrow procedure to a comprehensive package of services. In this paper, we explore five means of packaging physician services: collapsed procedure, office visit, special procedure, ambulatory condition, and inpatient condition packages. While three packages hold promise for reining in the costs of physician services in the Medicare program, two raise important policy considerations that would have to be addressed before they could be given further consideration.