Geographic variation in Part B reimbursement and physician offsetting behavior: a physician matching approach.

Historically, Medicare has operated under the assumption that providers respond to reductions in reimbursement through increased provision of services in an effort to offset declining practice revenue; however, some recent empirical work examining fee reductions has found evidence of either small offsetting effects or reductions in the quantity supplied. Using a distance matching approach that matches practices to nearby practices that are subject to different reimbursement rates, we find overall evidence in support of Medicare’s offsetting assumption collectively for all services and for evaluation and management services. We also find evidence consistent with a traditional volume response for imaging and testing services.