In traditional fee-for-service Medicare, physicians are paid on a per-service basis. Payments are based on the “relative value units” of a particular service, reflecting the relative costliness of...

In traditional fee-for-service Medicare, physicians are paid on a per-service basis.  Payments are based on the “relative value units” of a particular service, reflecting the relative costliness of inputs.




a. How does the mix of services provided by primary care physicians affect their reimbursement relative to specialists?  (2 points)




b. Describe the principal-agent problem in fee-for-service payment of physicians and physician-induced demand (also called supplier-induced demand).  Describe the findings of Baker (2010). What does this imply about physician-induced demand?  (3 points)




c. Compare the structure of payment under the Alternative Quality Contract compared to fee-for-service reimbursement. How does this change the incentives for the volume of services provided by physicians?  Are the findings of Song, et al. (2014) consistent with your theoretical prediction?  (3 points)




d. What is a potential unintended consequence of “global budgets” such as that in the Alternative Quality Contract?  How does the AQC attempt to mitigate this incentive, and was the attempt successful? (3 points