Variation in the Ratio of Physician Charges to Medicare Payments by Specialty and Region

Nearly all physicians charge more than the Medicare program actually pays (herein referred to as “excess charges”), with complete discretion to determine the amount charged. High excess charges can impose financial burdens on uninsured patients and privately insured patients using out-of-network physicians.^1,2 Although some out-of-network physicians may offer discounts from their full charges, many patients receive unexpected medical bills.³ A national study was conducted to understand the extent and variation of physician excess charges.

The Johns Hopkins University institutional review board determined that this study did not qualify as human subjects research. Medicare physician utilization and payment data from the Centers for Medicare & Medicaid Services were used, including medical specialty, practice location, Medicare utilization, payment, and submitted charges for US physicians who provided services to Medicare beneficiaries and submitted Medicare Part B noninstitutional claims during the 2014 calendar year.⁴ Physicians who did not participate in Medicare or accept Medicare assignment (n = 91); reported “unknown” (n = 95) or “multispecialty clinic/group practice” (n = 39) as their specialty; reported no Medicare charges (n = 65 944); or had less than $5000 in Medicare allowable amount for medical services (n = 22 262) were excluded.

Physician excess charges were defined as total charges divided by total Medicare allowable amount for medical services (ie, the charge-to-Medicare payment ratio) for each physician. The Medicare allowable amount, adjusted for local area cost of living and other factors, includes the Medicare payment amount and the deductible and coinsurance amounts. The Medicare allowable amount reflects what Medicare deems reasonable for services provided to Medicare patients.

Median physician excess charge was calculated overall, for each state, and for each medical specialty to identify any systematic patterns of variation. The specialty and geographic distribution of physicians with high excess charges, defined as physicians with median charge-to-Medicare payment ratios in the top 2.5%, was examined. Geographic distribution was determined by hospital referral region, defined by the Dartmouth Atlas of Health Care.

Data from 429 273 individual physicians across 54 medical specialties were included. Physician charge-to-Medicare payment ratio ranged between 1.0 and 101.1 across individual physicians, with a median of 2.5 (interquartile range [IQR], 1.8-3.6). The ratio varied across specialties (Table 1), with anesthesiology having the highest median (5.8 [IQR, 4.5-7.9]) and general practice having the lowest (1.6 [IQR, 1.3-2.2]). The ratio also varied across states (Table 2), with state median ranging between 2.0 (IQR, 1.5-3.1 for Michigan) and 3.8 (IQR, 2.9-6.5 for Wisconsin).

Of the 10 730 physicians with high excess charges, 55% were anesthesiologists and 3% were in general practice, internal medicine, or family practice. Of these physicians, 32% practiced in 10 of the 306 hospital referral regions in the United States: East Long Island and Manhattan, New York; Dallas and Houston, Texas; Milwaukee, Wisconsin; Atlanta, Georgia; Camden and Newark, New Jersey; Los Angeles, California; and Charlotte, North Carolina. The total number of physicians practicing in these 10 regions accounted for 16% of all US physicians.

Median physician charges were 2.5 times higher than what Medicare pays. The charge-to-Medicare payment ratio represents the upper limit of each physician’s actual excess charge. It may not be what a patient actually pays, but is useful for interspecialty and interregion comparisons.

Physician excess charge was higher for specialties in which patients have fewer opportunities to choose a physician or be informed of the physician’s network status (eg, anesthesiology). To our knowledge, there is no study indicating that Medicare systematically underpays these specialties compared with other specialties. Therefore, the relatively high excess charges of these specialties are more likely to be caused by interspecialty variation in charges than by interspecialty variation in Medicare allowable rates. There are also regional differences in excess charges. Two neighboring states (Wisconsin and Michigan) had different median excess charges (3.8 vs 2.0, respectively). About one-third of physicians with high excess charges practiced in only 10 hospital referral regions.

Limitations include that the number of uninsured and out-of-network patients actually treated and the discounts applied were unknown. However, no national database contains physicians’ actual billing amounts or patients’ actual payments. The charge and Medicare rate information for each medical service provided by a physician were unknown, which makes it unfeasible to examine whether each physician’s excess charge is consistent across their services. The results may not be generalizable to private or other insurance.

As the health insurance market shifts toward more restrictive physician networks and high-deductible plans,⁵ protecting uninsured and out-of-network patients from high medical bills should be a policy priority. For example, a recent law in New York restricts out-of-network physicians from charging patients excessive unexpected amounts.⁶

Corresponding Author: Ge Bai, PhD, CPA, Johns Hopkins Carey Business School, 100 International Dr, Baltimore, MD 21202 (gbai@jhu.edu).

Author Contributions: Dr Bai had full access to all of the data in the study and takes responsibility for the integrity of the data and the accuracy of the data analysis.

Concept and design: All authors.

Acquisition, analysis, or interpretation of data: All authors.

Drafting of the manuscript: All authors.

Critical revision of the manuscript for important intellectual content: All authors.

Statistical analysis: Bai.

Administrative, technical, or material support: Anderson.

Supervision: Anderson.

Conflict of Interest Disclosures: All authors have completed and submitted the ICMJE Form for Disclosure of Potential Conflicts of Interest and none were reported.

Additional Contributions: We thank Eric B. Bass, MD, MPH (Johns Hopkins University), Lee A. Fleisher, MD (University of Pennsylvania), and Earl Steinberg, MD, MPP (xG Health Solutions), for their comments on the article, for which they did not receive compensation.