Factors affecting differences in Medicare reimbursements for physicians' services.

Under Medicare's Part B program, wide variations are found in average reimbursements for physicians' services by demographic and geographic characteristics of the beneficiaries. Average reimbursements per beneficiary enrolled in the program depend upon the percentage of enrolled persons who exceed the deductible and receive reimbursements, the average allowed charge per service, and the number of services used. This study analyzes differences in average reimbursements per beneficiary for physicians' services in 1975 and discusses allowed charges and use factors that affect average reimbursements. Differences in the level of allowed charges and their impact on meeting the annual deductible are also discussed. The study indicates that average reimbursements per beneficiary are likely to continue to vary significantly year after year under the present Part B cost-sharing and reimbursement mechanisms.

Introduction

The Medicare program provides health insurance to 28 million persons in the nation today. It is designed to operate throughout the nation with a uniform set of benefits and a uniform set of cost-sharing requirements in the form of deductibles and coinsurance. For Part B (Supplementary Medical Insurance), a uniform monthly premium is also required for participation. Over the years, program data have indicated that although Medicare has uniform premiums and deductibles, benefits paid out vary significantly by State of residence of the beneficiary. These variations are due in part to the fact that reimbursements are based on local physicians' prices. The primary purpose of this paper is to discuss the variations found in Part B reimbursements and to analyze some of the factors that influence these differences.

A considerable body of knowledge has already been developed about variations in physicians' charges under Medicare and about the mechanism Medicare uses to determine allowed charges, known as the customary, prevailing, and reasonable charge (CPR) method. Under Medicare, the “reasonable” or “allowed” charge is the lowest of (1) the actual charge made by the physician for that service, (2) the physician's customary charge (the physician's 50th percentile) for that service, or (3) the prevailing charge (set at the 75th percentile of weighted customaries) in that locality for that service. It has been widely reported that physicians' charges for the same service vary substantially in different localities (Muller, 1979). Also widely publicized is the escalation in total expenditures for physicians' care since Medicare and Medicaid began (Gibson, 1979).

In response to concern about the continuing rise in physicians' charges—and the fact that under the CPR method, submitting higher charges one year raises the basis for reimbursement the next year—legislation was enacted to control the rate of increase in Medicare reimbursements. Starting in fiscal year 1976, increases in prevailing charges (the maximum Medicare allows) have been limited to an economic index. The index parallels the rate of increase in certain economic indicators that relate to the cost of maintaining an office practice are to the earnings level in the general economy.

Data have been available from the ongoing Medicare Statistical System to study variations by State in the proportion of persons enrolled in Part B who exceed the deductible and receive benefits. Until recently, however, data have not been available to analyze variations by State in actual allowed charges or in the number of reimbursed services.

This paper focuses on newly available data collected to study the relationship between submitted charges and allowed charges and to analyze variations in use factors that directly affect Medicare reimbursements on a per beneficiary basis. The paper analyzes the percentage of persons who receive reimbursement for physicians' services under Medicare, the number of services used, and average allowed charges to determine how these factors vary by demographic characteristics of the beneficiaries and by State of residence, and how they relate to differences in reimbursements. The scope of this paper is limited to a descriptive account of program experience. Local factors such as the supply of physicians' services or other factors in the economy that may explain differences in the use of services or differences in charges are not studied. With regard to the beneficiaries, the factors analyzed are age, sex, race, and area of residence. The ongoing statistical system does not include information about income or private health insurance coverage. Not studied, either, are differences in use or reimbursements for Medicare beneficiaries with Medicaid entitlement.

Sources of the Data

Since the beginning of Medicare in 1966, Medicare carriers (the Part B fiscal agents) have been required to prepare a payment record for 100 percent of all bills for which reimbursements are made under Part B. The payment records are used administratively to allow HCFA to equate the amount of reimbursement for bills with the amount the carriers report as disbursed on their monthly financial reports, to validate entitlement to benefits, and to monitor the computation of the reimbursable amount.

To obtain more detailed information than that available from the payment records, the Office of Research, Demonstrations, and Statistics (ORDS) in HCFA designed the five-percent Bill Summary Record System—hereafter referred to as the “Bill Summary.” From the Bill Summary—implemented in 1975—more detailed data became available on type of service (for example, medical care, surgery, laboratory, etc.) and site of service (office, hospital, etc.) for medical care services and for surgery. Also, in contrast to the payment record which does not contain the physician's submitted charges but only the physician's allowed charges, the Bill Summary record contains both the submitted and the allowed charges.

The information contained in the Bill Summary record is based on data submitted on specific HCFA claims forms: the 1490 (and its variations), the 1491, and the 1556. Claims for services submitted on the 1554 (for hospital-based physicians) and for services from Group Practice Prepayment Plans (GPPPs) that deal directly with HCFA were not included in the Bill Summary system, because reimbursement mechanisms for these services differ from the CPR system generally used. Reimbursements for claims submitted on the 1554 account for an estimated three percent of total reimbursements; payments to GPPPs account for an estimated 1.5 percent.

The Bill Summary system is based upon a five percent sample of Medicare beneficiaries. For each beneficiary whose identification number falls into the five percent sample, carriers are instructed to prepare a Bill Summary for all claims. The record includes the Medicare identification number of the beneficiary, the physician's charges, the amount Medicare allowed, the Medicare reimbursement, whether the claim was assigned, the specialty of the physician or supplier, and the number, type of service, and site of service for medical care services and for surgery. Data from the master health insurance enrollment file—which contains the age, sex, race, and residence of the beneficiary—are incorporated into the Bill Summary to provide information about the characteristics of the users. At the end of each year the data base is refined to include only beneficiaries who exceeded the $60 deductible and received Medicare benefits. Data for the set of persons who did not exceed the deductible were eliminated because the set is incomplete, that is, some individuals may choose not to submit claims if they know they have not met the deductible. Also, the Bill Summary records for physicians' bills submitted on the HCFA-1556 (for group practice prepayment plans that are processed by the carriers) were eliminated from this study, since they represent an insignificant fraction of all reimbursements and are not directly comparable to the 1490 type of claim.

There are two major limitations of this data set for descriptive and analytical studies. Neither the patient's diagnosis nor the specific medical or surgical service received has been coded. Despite these limitations, the data permit a detailed analysis of program reimbursements and of the impact of variations in allowed charges and use on reimbursements. In this report the information presented is confined to the Medicare population aged 65 years and over.

Sampling Errors

To facilitate data processing for this study, a subset was drawn that contains information for a one percent sample of the population. The Technical Note at the end of this report contains information about the sampling errors associated with the data.

Non-Sampling Errors

The consistency of the Bill Summary record is checked by the carrier and by HCFA, using a series of computer edits on a record-by-record basis. Such edits detect a limited set of errors—primarily invalid codes and claim numbers. The completeness of the file is checked by HCFA against the administrative payment record system; because the two data sets vary somewhat in content, only judgements can be made as to the completeness of the Bill Summary system. On a national basis, it is estimated that the Bill Summary system for 1975 falls short of the administrative payment record system by approximately three percent of total reimbursements. Firm estimates cannot be made about the completeness of the data in the Bill Summary system for each State. For this reason Table A provides a comparison of data from the administrative payment record system with data from the Bill Summary system. An explanatory note about the potential incompleteness of the Bill Summary data for certain States is contained in the section on Non-Sampling Errors in the Technical Note.

Table A

Comparison of Percentage of Beneficiaries with Reimbursements for Physicians' Services and Average Reimbursement per Person Enrolled: From the Administrative Payment Record system and from the Bill Summary, 1975

State	Payment Record1		Bill Summary2
	Percent of Persons Enrolled Exceeding the Deductible	Average Reimbursement per Person Enrolled	Percent of Persons Enrolled Exceeding the Deductible	Average Reimbursement per Person Enrolled
United States	52	$ 139	50	$ 131
Northeast	54	151	52	146
New England	53	132	52	127
Maine	46	105	46	106
New Hampshire	52	110	49	98
Vermont	54	112	55	105
Massachusetts	52	135	51	127
Rhode Island	64	152	64	153
Connecticut	53	139	51	137
Mid Atlantic	55	157	52	152
New York	57	181	53	173
New Jersey	56	154	55	150
Pennsylvania	51	124	49	123
North Central	48	117	45	110
East North Central	48	119	45	112
Ohio	47	107	45	101
Indiana	47	98	46	99
Illinois	44	124	41	115
Michigan	54	137	49	122
Wisconsin	48	125	46	124
West North Central	49	112	45	106
Minnesota	51	130	47	111 *
Iowa	45	90	46	92
Missouri	48	111	45	114
North Dakota	57	121	55	102 *
South Dakota	43	87	38	76
Nebraska	43	108	40	105
Kansas	54	123	47 *	114
South	50	128	48	117
South Atlantic	51	137	49	126
Delaware	52	123	52	98 *
Maryland	52	138	42 *	107 *
District of Columbia	58	199	49 *	173
Virginia	45	106	44	101
West Virginia	40	81	38	71
North Carolina	46	98	46	94
South Carolina	45	90	44	86
Georgia	50	118	47	110
Florida	59	185	57	171
East South Central	45	97	42	84
Kentucky	39	76	35	65 *
Tennessee	45	98	42	87
Alabama	49	115	43	92 *
Mississippi	48	100	47	98
West South Central	52	135	51	124
Arkansas	51	118	50	112
Louisiana	47	111	45	106
Oklahoma	50	125	48	110
Texas	54	150	53	137
West	59	182	57	170
Mountain	53	143	50	133
Montana	49	113	44	65 *
Idaho	50	112	47	100
Wyoming	45	103	38 *	99
Colorado	55	144	53	133
New Mexico	51	136	51	147
Arizona	56	175	54	173
Utah	49	119	45	100 *
Nevada	54	175	54	171
Pacific	61	194	59	181
Washington	58	144	56	137
Oregon	52	129	51	125
California	63	213	61	197
Alaska	61	195	61	188
Hawaii	56	139	58	137

Based on a five-percent sample. Data are from the administrative payment record system from HCFA claim forms 1490 (and Its variations); 1491; 1554, and 1556. Nationally, combined reimbursements from the 1554 and 1556 are approximately three percent of total reimbursements shown.

Based on a one-percent sample. Data are from the Bill Summary record system based on HCFA claim forms: 1490 (and its variations) and the 1491.

NOTE: For an explanation of the asterisks, see section on Non-Sampling Errors in the Technical Note.

Methods

Claims records were accumulated for services rendered throughout 1975. They were aggregated by beneficiary identification number and by age, sex, and race groups. First, sample reimbursements were multiplied by 100 (to estimate the universe of reimbursements) and then divided by the number of beneficiaries enrolled in Part B to analyze differences in reimbursements per beneficiary by characteristics of beneficiaries. Second, reimbursements were aggregated by State of residence of the beneficiaries and divided by the number of beneficiaries enrolled in Part B to analyze differences in reimbursements per beneficiary by State. Thus, State-level data are beneficiary-oriented, referring to State of residence of the beneficiary, without regard to where the services were received.

To analyze demographic or geographic differences in Medicare reimbursements per beneficiary for physicians' services, each of the factors that affect reimbursements are examined. The first two are price and quantity. The price factor will be defined as:

C = the average allowed charge per service

The quantity factor will be defined as:

Su = the average number of services per user receiving Medicare reimbursements

In addition to price and quantity, Medicare reimbursements per beneficiary for physicians' services are affected by the cost-sharing provisions of the law. An annual deductible of $60 in allowed charges must be met before Medicare makes any reimbursement.

Du = the average annual deductible per user

For the average user, less than $60 of allowed charges are deducted for physicians' services because (a) the “carryover” provision allows charges that were applied toward the deductible during the last quarter of the year to be applied to the next year also, and (b) part of the deductible is met through other Part B services such as hospital outpatient care.

In addition to the deductible, beneficiaries must share in the cost of each service. Medicare reimburses 80 percent of allowed charges while the beneficiaries are liable for 20 percent.

Finally, average reimbursement per beneficiary depends upon the proportion of beneficiaries who exceed the deductible and receive Medicare reimbursements. If we define:

P = proportion of beneficiaries who exceed the deductible and receive reimbursements and

Rb = average reimbursement per beneficiary,

then an equation can be set up that takes into account price, quantity, the deductible, coinsurance, and the proportion of beneficiaries with reimbursements.

The next part of the paper presents the findings from the data collected from the Bill Summary for 1975. It is organized around the concepts included in Equation (1). First, average reimbursements per beneficiary (Rb) will be examined by demographic characteristics of the beneficiaries and by area of residence. In this section, relationships between submitted charges and allowed charges and between submitted charges and reimbursements will be studied. Then the following sections will examine the right hand factors in the equation: P, C, and Su. As P, C, or Su increases in an area, Rb increases. To test whether Rb is well correlated with P, a simple correlation coefficient is computed between Rb and P using data for each State. Similarly, simple correlation coefficients are computed between Rb and C and between Rb and Su.

In addition, because the level of charges in an area affects the proportion of beneficiaries who exceed the deductible, the strength of the relationship between C and P is tested using data for each State. Similarly, the average number of services per user in an area affects P. To test that relationship, Su and P are correlated.

Findings

Average Medicare Reimbursements Per Beneficiary (Rb)

Table 1 shows physicians' submitted charges for services rendered in 1975, the percentage allowed by Medicare, and the percentage reimbursed, by characteristics of the beneficiaries. Of the total $4.9 billion in charges submitted nationally, 81.5 percent were allowed, that is, deemed reasonable under the CPR methodology. This means that physicians' charges were reduced an average of 18.5 percent. After the deductible and coinsurance were subtracted, Medicare reimbursed nationally 58.1 percent of total charges or an average of $131 per beneficiary. (“Per beneficiary” throughout this report means “per person enrolled” whereas “per user” means “per person who met the deductible and received reimbursements.” Persons who used Medicare benefits but failed to meet the deductible are not included in this analysis.)

Table 1

Medicare Beneficiaries: Total Physicians' Charges, Allowed Charges, and Medicare Reimbursements by Age, Sex, and Race, for Persons Aged 85 and Over, 1975

Age, Sex, and Race	Total Physicians' Charges (in mil.)	Allowed Charges as Percent of Physicians' Charges	Medicare Reimbursements
			Percent of Physicians' Charges	Per Beneficiary
	(1)	(2)	(3)	(4)
U.S. Total	$4,904.61	81.5	58.1	$131
Age:
65-69	1,338.1	81.3	57.9	105
70-74	1,312.4	81.6	58.1	132
75-79	1,027.6	81.7	58.2	143
80-84	735.1	81.6	58.2	158
85 and Over	491.4	81.5	57.7	159
Sex:
Men	2,085.5	81.4	58.9	140
Women	2,819.0	81.6	57.4	125
Race:
White	4,531.3	81.6	58.1	135
Other	301.4	81.0	57.3	98

For beneficiaries who met the deductible and received reimbursements.

Age, Sex, and Race

As shown in Table 1, the relationship between total submitted charges and the percent of charges allowed (col. 2) and reimbursed (col. 3) varies very little by age, sex, or race. As expected, reimbursement per beneficiary was higher for older age groups—$105 for the group 65-69 years of age and $159 for the group 85 years of age and over (col. 4). This reflects a greater proportion of persons who met the deductible and a greater number of services per user for older age groups (as will be shown later). Reimbursements for men averaged $140 in comparison to $125 for women.

Disparities by race in benefits paid for physicians' services were considerable. Aged white persons were reimbursed an average of $135 per beneficiary; aged persons of all other races were reimbursed $98 per beneficiary. Although the average age of white persons is greater than the average for all other races, differences in the age composition of the two groups do not explain these findings. As the data in Table 1-A indicate, reimbursement per beneficiary for physicians' services in the U.S. and in the South (where 56 percent of persons of other races reside) was consistently higher for white persons compared to persons of other races for every age and sex category.

Differences by race in average reimbursements for physicians' services are offset, in part, by differences in use and reimbursement for hospital outpatient care. Data from the ongoing Medicare Statistical System for the U.S. indicate that 17 percent of white beneficiaries compared to 20 percent of non-white beneficiaries received Medicare reimbursement for hospital outpatient care in 1975; these reimbursements averaged $16 per white beneficiary and $28 per non-white beneficiary enrolled in Medicare. Comparable data for the South show that 14 percent of white and 16 percent of non-white beneficiaries received hospital outpatient reimbursements; average reimbursements were $11 for white beneficiaries and $18 for non-white.

Census Region and State

Similar to the findings for age, sex, and race, the percentage of charges that were allowed and reimbursed varied very little by census region, although reimbursement per beneficiary varied considerably. As shown in Table 2, the highest reimbursements per beneficiary were in the West ($170), followed by the Northeast ($146), the South ($117), and the North Central region ($110).

Table 2

Medicare Beneficiaries: Total Physicians' Charges, Allowed Charges, and Medicare Reimbursements for Persons Aged 65 and over by State, 1975

Area of Residence	Total Physicians' Charges (in mil.)	Allowed Charges as Percent of Physicians' Charges	Medicare Reimbursements
			Percent of Physicians' Charges	Per Beneficiary
	(1)	(2)	(3)	(4)
United States	$4,904.6	81.5	58.1	$131
Northeast	1,386.4	80.2	57.2	146
New England	297.8	81.1	57.4	127
Maine	22.1	85.5	61.8	106
New Hampshire	15.3	81.4	56.9	98
Vermont	9.5	85.0	58.7	105
Massachusetts	146.9	79.7	56.5	127
Rhode Island	30.6	80.2	55.5	153
Connecticut	73.5	82.4	58.6	137
Mid Atlantic	1,088.6	80.0	57.2	152
New York	614.8	78.2	56.2	173
New Jersey	194.9	81.6	57.7	150
Pennsylvania	278.8	82.8	59.1	123
North Central	1,121.7	82.7	58.9	110
East North Central	760.1	81.8	58.9	112
Ohio	178.5	82.9	58.5	101
Indiana	87.2	83.6	58.7	99
Illinois	215.0	83.2	60.1	115
Michigan	174.5	77.2	57.0	122
Wisconsin	104.8	83.5	60.2	124
West North Central	361.6	84.5	59.1	106
Minnesota	80.2	85.0	60.3	111
Iowa	58.2	82.3	57.3	92
Missouri	112.8	84.9	58.8	114
North Dakota	13.1	83.0	56.2	102
South Dakota	11.2	83.0	56.9	76
Nebraska	32.2	85.7	61.9	105
Kansas	53.9	85.2	59.1	114
South	1,379.3	81.9	57.9	117
South Atlantic	735.1	81.6	58.2	126
Delaware	8.7	79.7	56.1	98
Maryland	58.6	82.3	59.0	107
District of Columbia	18.5	80.7	60.5	173
Virginia	69.9	82.8	58.6	101
West Virginia	25.5	83.4	58.1	71
North Carolina	77.1	84.4	58.7	94
South Carolina	33.6	83.5	57.1	86
Georgia	78.3	82.9	58.3	110
Florida	364.9	80.1	57.9	171
East South Central	210.7	81.7	56.4	84
Kentucky	42.9	79.9	54.8	65
Tennessee	67.1	81.1	55.8	87
Alabama	58.0	83.7	58.1	92
Mississippi	42.7	81.9	56.5	98
West South Central	433.5	82.6	58.2	124
Arkansas	50.4	83.3	58.4	112
Louisiana	57.6	83.3	58.6	106
Oklahoma	60.5	82.8	58.5	110
Texas	264.9	82.3	58.1	137
West	1,014.6	81.4	58.4	170
Mountain	185.4	82.3	58.7	133
Montana	8.4	79.8	57.2	65
Idaho	13.8	80.6	56.5	100
Wyoming	5.6	81.3	58.5	99
Colorado	46.4	84.0	59.2	133
New Mexico	21.4	84.4	60.7	147
Arizona	62.1	81.6	58.8	173
Utah	15.4	81.2	56.4	100
Nevada	12.3	82.2	59.6	171
Pacific	829.2	81.2	58.3	181
Washington	83.2	82.9	58.3	137
Oregon	53.7	82.5	58.1	125
California	676.7	80.9	58.4	197
Alaska	2.1	83.4	60.3	188
Hawaii	13.5	81.2	56.7	137

The percent of charges allowed and reimbursed varied a little more by State of residence of the beneficiary (Table 2). Allowed charges ranged from 77.2 percent of total charges in Michigan to 85.7 percent in Nebraska. That is, physicians' charges were reduced an average of 22.8 percent for Michigan beneficiaries and 14.3 percent for Nebraska beneficiaries. Several factors can influence differences in the rate of reduction of physicians' charges, including differences in the rate of increase of charges over time and discretionary practices of carriers as they apply the CPR method (Schieber, ; Muller, 1979).

By State, variations in per beneficiary payments were dramatic. As indicated from the data below which show the States with the highest and lowest reimbursements, the highest mean for a State ($197 in California) was more than three times that of the lowest mean for a State ($65 in both Montana and Kentucky).

Percentage of Beneficiaries who Exceeded the Deductible and were Reimbursed (P)

The percentage of beneficiaries who exceeded the deductible and were reimbursed for physicians' services are shown in Tables 3 and 4. Overall, 50 percent of aged beneficiaries received reimbursements for physicians' services. Beneficiaries who received reimbursements for physicians' services in 1975 represent only a fraction of the total number of Medicare beneficiaries who actually used physicians' services that year. A survey of Medicare beneficiaries in 1975 (the Current Medicare Survey, in effect from 1966-1977) found that over 80 percent of the aged beneficiaries used some Medicare-covered physicians services. Thus, an estimated 30 percent of beneficiaries used physicians' services although they did not exceed the deductible and receive benefits. Variations by age, sex, race, and geographic area in the proportion that received reimbursements for physician's services are discussed next.

Table 3

Medicare Beneficiaries: Number and Percent of Beneficiaries Who Met the Deductible and Received Reimbursements for Physicians' Services by Age, Sex, and Race, 1975

Age, Sex, Race	Number	Percent of Beneficiaries Exceeding the Deductible
U.S. Total	10,821,900	50
Age:
65-69	3,027,800	41
70-74	2,892,600	50
75-79	2,237,500	54
80-84	1,560,800	58
85 & Over	1,103,200	62
Sex:
Men	4,157,000	47
Women	6,664,900	51
Race:
White	9,889,900	51
Other Races	748,400	43

Table 4

Medicare Beneficiaries: Percentage of Aged Part B Beneficiaries Who Met the Deductible and Received Reimbursements for Physicians' Services by State, 1975

Area of Residence	Percent of Beneficiaries Exceeding the Deductible
United States	50
Northeast	52
New England	52
Maine	46
New Hampshire	49
Vermont	55
Massachusetts	51
Rhode Island	64
Connecticut	51
Mid Atlantic	52
New York	53
New Jersey	55
Pennsylvania	49
North Central	45
East North Central	45
Ohio	45
Indiana	46
Illinois	41
Michigan	49
Wisconsin	46
West North Central	45
Minnesota	47
Iowa	46
Missouri	45
North Dakota	55
South Dakota	38
Nebraska	40
Kansas	47
South	48
South Atlantic	49
Delaware	52
Maryland	42
District of Columbia	49
Virginia	44
West Virginia	38
North Carolina	46
South Carolina	44
Georgia	47
Florida	57
East South Central	42
Kentucky	35
Tennessee	42
Alabama	43
Mississippi	47
West South Central	51
Arkansas	50
Louisiana	45
Oklahoma	48
Texas	53
West	57
Mountain	50
Montana	44
Idaho	47
Wyoming	38
Colorado	53
New Mexico	51
Arizona	54
Utah	45
Nevada	54
Pacific	59
Washington	56
Oregon	51
California	61
Alaska	61
Hawaii	58

Not unexpectedly, the proportion that exceeded the deductible was substantially higher for older age groups—41 percent of the beneficiaries at ages 65 to 69 compared to 62 percent of beneficiaries 85 years and over. The proportion that met the deductible was a little greater for women (51 percent) compared to men (47 percent).

Of the total white beneficiary population, 51 percent met the deductible and received benefits for physicians' services. Of the total non-white population, the proportion was 43 percent. Differences in age composition, geographic area of residence, and the use of hospital outpatient services (discussed earlier) may explain some of the differences.

The range in the percentage of Part B beneficiaries with reimbursements for physicians' services by census region was from a low of 45 percent in the North Central region to a high of 57 percent in the West, as shown below.

Variations by State in the percentage of beneficiaries who received reimbursements for physicians' services were striking (Table 4). In three States, over 60 percent of the aged met the deductible, while in four States, less than 40 percent were reimbursed. The highest and lowest States are shown below:

To determine the strength of the relationship between the percentage of beneficiaries who exceeded the deductible and received Medicare benefits for physicians' services in each State and the amount of reimbursements per beneficiary in each State, a correlation coefficient was computed and shown to be significant, .78 (P ≤ .05). This result indicates that there is a very strong relationship between the percentage of beneficiaries who met the deductible in each State and the amount reimbursed.

Average Allowed Charge Per Service (C)

Table 5 shows the average allowed charge by characteristics of the beneficiaries for all services combined and for the types of services that account for the highest percentage of allowed charges: medical care (40.2 percent); inpatient surgery (25.8 percent); diagnostic x-ray (6.7 percent); and diagnostic laboratory (8.2 percent). The average allowed charge for all services combined was $15.34; for medical care services, $10.83; for inpatient surgery, $272.63; for diagnostic x-ray, $15.46; and for diagnostic lab services, $6.60.

Table 5

Medicare Beneficiaries: Average Allowed Charge per Service by Type of Service, and by Age, Sex, and Race, 1975

Age, Sex, Race	Total	Medical Care	Inpatient Surgery	Diagnostic X-Ray	Diagnostic Laboratory
U.S. Total	$15.34	$10.83	$272.63	$15.46	$6.60
Age:
65-69	16.09	11.02	272.09	16.28	6.76
70-74	15.43	10.87	263.48	16.19	6.59
75-79	15.15	10.73	272.37	15.28	6.47
80-84	14.98	10.87	275.30	14.38	6.62
85 and Over	14.20	10.49	300.76	12.86	6.37
Sex:
Men	16.46	11.13	267.94	15.59	6.77
Women	14.60	10.65	277.06	15.38	6.49
Race:
White	15.42	10.84	273.11	15.47	6.64
Other Races	14.07	10.55	254.90	15.55	6.02

For all types of services combined and for diagnostic x-ray services, the average allowed charge per service decreased steadily as age increased. With the exception of inpatient surgery services, average allowed charges were higher for men than for women. These differences by age and sex very likely reflect differences in the mix of services. By race, with the exception of diagnostic x-ray services, average allowed charges were higher for white persons than for other races, perhaps reflecting, in part, the differences in allowed charges by geographic area discussed below.

For all services combined, the average allowed charge was highest in the West ($17.13), followed by the Northeast ($16.54), the North Central Region ($14.75), and the South ($13.74). The relatively low average allowed charge in the South probably explains some of the differences by race in average allowed charges. This pattern by region was generally true for each type of service except that the North Central region had the lowest average allowed charges for inpatient surgery, diagnostic x-ray, and laboratory services as shown in Table 6.

Table 6

Medicare Beneficiaries: Average Allowed Charge per Service for Aged Persons by Type of Service and by State, 1975

Area of Residence	Total	Medical Care	Inpatient Surgery	Diag. X-Ray	Diag. Lab
United States	$15.34	$10.83	$272.63	$15.46	$ 6.60
Northeast	16.54	11.67	278.13	19.23	7.33
New England	14.88	10.83	259.90	13.39	6.34
Maine	12.01	8.86	217.89	9.00	6.47
New Hampshire	10.78	8.07	245.62	8.97	5.55
Vermont	11.65	8.21	184.15	11.00	5.39
Massachusetts	14.98	11.23	249.69	12.55	6.70
Rhode Island	14.48	11.56	316.93	16.83	5.90
Connecticut	18.36	11.91	294.26	19.08	6.04
Mid Atlantic	17.06	11.91	283.92	22.85	7.63
New York	18.01	13.25	328.49	24.49	7.42
New Jersey	16.48	11.07	281.82	20.71	7.90
Pennsylvania	15.72	10.25	227.98	20.88	8.04
North Central	14.75	10.61	248.10	12.31	5.75
East North Central	15.14	11.23	257.45	11.57	5.28
Ohio	11.93	9.08	259.12	12.04	3.37
Indiana	13.38	8.91	240.01	8.77	6.42
Illinois	16.56	10.94	288.76	13.47	6.41
Michigan	n.a.	n.a.	n.a.	13.16	6.80
Wisconsin	12.88	9.44	250.93	12.57	5.68
West North Central	14.03	9.67	230.22	14.68	6.73
Minnesota	14.40	11.57	229.33	14.70	7.24
Iowa	13.54	9.80	252.68	16.75	6.51
Missouri	13.43	8.61	223.57	13.41	5.62
North Dakota	10.71	8.04	213.40	17.57	5.75
South Dakota	12.67	10.15	206.10	12.40	6.50
Nebraska	14.14	8.42	226.37	16.82	8.48
Kansas	17.22	11.02	238.85	14.54	6.95
South	13.74	9.55	271.66	14.61	6.03
South Atlantic	15.25	10.84	283.19	15.39	6.27
Delaware	11.52	10.48	203.70	15.28	7.27
Maryland	17.57	12.30	298.96	14.93	6.57
District of Columbia	19.30	14.42	305.47	25.97	12.21
Virginia	14.13	9.74	248.77	14.53	5.64
West Virginia	11.72	8.10	227.70	12.05	3.94
North Carolina	13.02	8.81	266.22	12.08	5.80
South Carolina	12.62	8.35	279.45	12.08	4.79
Georgia	13.49	9.29	242.67	15.33	4.99
Florida	16.95	12.85	314.90	16.67	6.62
East South Central	11.55	7.74	244.05	12.11	5.30
Kentucky	11.94	8.02	246.62	13.83	5.65
Tennessee	11.94	8.09	265.10	11.54	4.67
Alabama	13.36	8.86	250.02	12.62	6.49
Mississippi	9.10	6.22	203.87	11.41	4.39
West South Central	12.79	8.89	268.46	14.62	5.98
Arkansas	10.18	7.77	230.01	12.95	4.61
Louisiana	14.06	9.01	286.54	17.03	6.32
Oklahoma	13.07	8.89	264.53	13.92	5.98
Texas	13.12	9.14	273.48	14.80	6.27
West	17.13	12.07	305.41	19.45	7.80
Mountain	15.89	10.65	288.78	16.18	6.36
Montana	12.13	8.97	235.73	20.21	6.67
Idaho	11.89	8.44	224.51	17.36	3.44
Wyoming	13.61	8.95	248.95	11.22	5.70
Colorado	15.47	10.05	268.15	12.77	6.97
New Mexico	14.92	9.49	321.08	15.95	7.89
Arizona	16.85	11.58	352.48	18.18	6.61
Utah	n.a.	13.89	226.54	16.26	5.41
Nevada	21.55	13.34	347.10	25.27	8.76
Pacific	17.44	12.43	310.02	20.46	8.12
Washington	15.34	9.77	290.36	16.60	7.13
Oregon	14.98	10.29	105.74	14.08	6.40
California	18.02	12.98	388.05	22.61	8.44
Alaska	18.60	17.03	282.46	22.09	10.27
Hawaii	16.09	11.31	291.30	18.75	7.02

Average is considerably below all other States; further study is needed to assess its accuracy.

The average allowed charge varied considerably by State, ranging from a low in Mississippi of $9.10 per service for all services combined to a high in Nevada of $21.55 (Table 6). The extent to which differences in billing practices affect the variations in average allowed charges cannot be determined from this data set. States with the highest and lowest average allowed charges are shown below.

For medical care, allowed charges ranged from a low of $6.22 in Mississippi to a high of $17.03 in Alaska—the figure in Alaska registering 174 percent above the average in Mississippi (Table 4). California had the highest allowed charge for inpatient surgery, $388.05. The average in Oregon for inpatient surgery was $105.74—a figure well outside the range for all other States. Vermont had the next lowest average for surgery—$184.15.

The correlation of reimbursement per beneficiary with the average allowed charge for all services combined was computed and found to be significant at .76 (P ≤.05).

Fee Levels Compared to Average Allowed Charges

Several studies have focused on the wide range in fees submitted by physicians for the same service. Muller and Otelsberg (1979) found that median fees of general practitioners for “Initial Limited Office Visits—New Patient” ranged from $25.00 in one locality to $7.00 in another locality and “Initial Comprehensive Office Visit—New Patient” ranged from $63.80 to $5.00; “Initial Brief Hospital Visit” median fees ranged from $42.00 to $6.00. For specialists, median fees for “Reduction of Fracture—Neck of Femur” ranged from $1,450.00 to $429.00 and for a “Chest X-ray” from $26.25 to $4.50.

To analyze geographic variations in Medicare fee levels, Burney , constructed composite indexes for 1975 for every State to show prevailing fee levels of specialists for 29 frequently performed services. These indexes were constructed to show relative fee levels, with the U.S. index set at 100. They used a standard mix of services so that the fee indexes would reflect price differences only, not differences in the mix of services.

The average allowed charge reflects several factors: price levels for all physicians and for all services; the mix of services received; billing style practices (for example, whether a lab test charge is included in the office visit charge or billed separately); and the allowed charge from the CPR payment mechanism. Variations in all these factors affect average allowed charges.

To compare the indexes derived by Burney et al. for prevailing physicians' fees in each State with the average allowed charges per service found in this study, allowed charge indexes were constructed by dividing each State's average allowed charge by the U.S. average allowed charge of $15.34 (from Table 6).

The prevailing fee index derived by Burney et al., and the allowed charge index computed from these data are given in Table 7. The fee indexes in New York and Alaska were highest at 132, or 32 percent above the U.S. average. In Mississippi it was lowest at 73, or 27 percent below average. The allowed charge index was highest in Nevada at 140, or 40 percent above average and lowest in Mississippi at 59, or 41 percent below average.

Table 7

Medicare Beneficiaries: Comparison of Prevailing Fee Indexes, FY 1975 with Medicare Average Allowed Charge Per Service Indexes, 1975

Area of Residence	Specialist Fee Index1	Average Allowed Charge Index2
United States	100	100
Northeast	111	108
New England	–	–
Maine	80	78
New Hampshire	85	70
Vermont	80	76
Massachusetts	99	98
Rhode Island	95	94
Connecticut	103	120
Mid Atlantic	–	–
New York	132	117
New Jersey	112	107
Pennsylvania	94	102
North Central	90	96
East North Central	–	–
Ohio	88	78
Indiana	83	87
Illinois	103	108
Michigan	91	n.a.
Wisconsin	86	84
West North Central	–	–
Minnesota	85	94
Iowa	84	88
Missouri	88	88
North Dakota	79	70
South Dakota	77	83
Nebraska	80	92
Kansas	86	112
South	93	90
South Atlantic	–	–
Delaware	94	75
Maryland	101	115
District of Columbia	116	126
Virginia	87	92
West Virginia	80	76
North Carolina	86	85
South Carolina	85	82
Georgia	98	88
Florida	112	111
East South Central	–	–
Kentucky	76	78
Tennessee	88	78
Alabama	99	87
Mississippi	73	59
West South Central	–	–
Arkansas	89	66
Louisiana	94	92
Oklahoma	93	85
Texas	95	86
West	111	112
Mountain	–	–
Montana	87	79
Idaho	85	78
Wyoming	84	89
Colorado	87	101
New Mexico	87	97
Arizona	109	110
Utah	85	n.a.
Nevada	125	140
Pacific	–	–
Washington	96	100
Oregon	92	98
California	120	117
Alaska	132	121
Hawaii	95	105

Burney, I. L, G. J. Schleber, M. O. Blaxall, and J. R. Gabel, “Geographic Variations in Physicians' Fees,” JAMA, September 22, 1978 - Vol. 240. No. 13.

Derived from Table 6 by dividing each State's average allowed charge by $15.34, the average allowed charge In the U.S.

As expected, for many States the fee index and the allowed charge index are of a similar magnitude. A correlation coefficient was computed to determine the strength of the relationship between these two indexes. The correlation was found to be significant at .64 (P ≤ .05). The similarity of the two indexes may be observed in the data below for the States with the highest and lowest physician fee indexes.

It is interesting to observe that the range in average allowed charges was greater than the range in physicians' fees. The highest fee level areas (New York and Alaska) had indexes that were 81 percent greater than the index in the lowest fee level area (Mississippi). In comparison, the highest allowed charge area (Nevada) had an allowed charge index that was 137 percent greater than the lowest allowed charge area (Mississippi). Evidently prevailing fee levels, as well as other factors including the mix of services, billing practices, etc., play an important role in the variation in average allowed charges.

Relationship Between Allowed Charges in an Area (C) and Percentage of Beneficiaries who Exceed the Deductible (P)

Clearly, beneficiaries in areas with low average allowed charges have a lower probability of reaching the deductible and receiving Medicare benefits than do beneficiaries in areas with high average allowed charges. For example, allowed charges for medical care services averaged $6.22 in Mississippi, so on the average 10 such services are needed in Mississippi to exceed the deductible. In contrast, allowed charges for medical care services averaged $12.98 in California and $12.85 in Florida, so only five services are needed in those States to exceed the deductible. No doubt these differences are reflected in the fact that in Mississippi 47 percent of the beneficiaries exceeded the deductible in 1975, while 57 percent did so in Florida and 61 percent in California.

The correlation coefficient between C (for all types of services) and P was .39 (P ≤ .05); for Cm (for medical care services) and P the correlation coefficient was .52 (P ≤ .05).

Average Number of Services Per Reimbursed User (Su)

Table 8, (col. a) shows that the average number of services per reimbursed user was 24.1, with the number of services received per reimbursed user rising only slightly with older age groups. Neither sex, race, nor census region had much influence on the number of services per reimbursed user. Similarly, the average number of services per reimbursed user in each census region was relatively constant: Northeast, 23.8 services; North Central, 23.2; South, 25.1; and West, 24.2.

Table 8

Medicare Beneficiaries: Average Number of Services per Reimbursed User and Average Number of Reimbursed Services per Beneficiary for Persons Aged 65 Years and Over, by Age, Sex, and Race, 1975

Age, Sex, Race	Average Number of Services per Reimbursed User	Average Number of Reimbursed Services per Beneficiary
	(a)	(b)
Total	24.1	12.0
Age:
65-69	22.3	9.2
70-74	24.0	12.0
75-79	24.8	13.3
80-84	25.6	14.8
85 and Over	25.6	15.8
Sex:
Men	24.8	11.7
Women	23.6	12.1
Race:
White	24.2	12.3
Other Races	23.2	9.9

Although there were wide variations in the number of services per reimbursed user by State (Table 9, col a), a comparison of States with the highest reimbursements per beneficiary and the number of services per reimbursed user shows no obvious pattern. A correlation coefficient was computed using data for all States to determine if there was a correlation between reimbursement per beneficiary and average number of services per reimbursed user. The correlation was only .10.

Table 9

Medicare Beneficiaries: Average Number of Services per Reimbursed User and Average Number of Reimbursed Services per Beneficiary for Persons Aged 66 Years and Over, by State, 1976

Area of Residence	Average Number of Services per Reimbursed User	Average Number of Reimbursed Services per Beneficiary
	(a)	(b)
United States	24.1	12.0
Northeast	23.8	12.4
New England	23.3	12.0
Maine	26.8	12.3
New Hampshire	26.7	13.0
Vermont	24.0	13.1
Massachusetts	23.4	11.9
Rhode Island	23.6	15.2
Connecticut	20.5	10.5
Mid Atlantic	24.0	12.5
New York	25.1	13.4
New Jersey	23.3	12.9
Pennsylvania	22.5	10.9
North Central	23.2	10.5
East North Central	22.8	10.3
Ohio	26.5	12.0
Indiana	22.9	10.5
Illinois	23.1	9.6
Michigan	n.a.	n.a.
Wisconsin	28.9	13.4
West North Central	24.0	10.9
Minnesota	23.1	10.9
Iowa	21.5	9.8
Missouri	27.5	12.2
North Dakota	25.5	14.0
South Dakota	22.8	8.7
Nebraska	25.9	10.3
Kansas	20.3	9.6
South	25.1	12.0
South Atlantic	23.6	11.5
Delaware	23.4	12.1
Maryland	20.3	8.5
District of Columbia	24.4	12.0
Virginia	23.1	10.1
West Virginia	22.9	8.7
North Carolina	22.6	10.4
South Carolina	22.6	10.0
Georgia	24.5	11.6
Florida	24.7	14.0
East South Central	25.4	10.6
Kentucky	22.5	7.9
Tennessee	24.9	10.6
Alabama	22.9	9.9
Mississippi	33.1	15.6
West South Central	27.2	13.8
Arkansas	31.4	15.7
Louisiana	24.0	10.7
Oklahoma	24.8	11.9
Texas	27.7	14.8
West	24.2	13.8
Mountain	23.3	11.7
Montana	17.1	7.5
Idaho	25.8	12.0
Wyoming	26.4	10.1
Colorado	22.9	12.2
New Mexico	26.8	13.7
Arizona	26.4	14.3
Utah	n.a.	n.a.
Nevada	20.5	11.0
Pacific	24.4	14.5
Washington	22.7	12.6
Oregon	23.4	11.9
California	24.8	15.2
Alaska	22.9	14.0
Hawaii	21.1	12.2

n.a. Not available. Counts of services were unreliable for Michigan and Utah.

Average Number of Reimbursed Services Per Beneficiary

The average number of reimbursed services per beneficiary is the product of two factors discussed above: the proportion of beneficiaries who exceeded the deductible and received reimbursements (P) and the average number of services per reimbursed user (Su). This variable is discussed below.

Table 8 (col. b) shows the average number of reimbursed services per beneficiary by age, sex, and race. The average was 12.0 services, with the number rising steadily for older age groups. Little difference was found in the average number of reimbursed services per beneficiary for men in comparison to women. By race the difference was substantial, with white beneficiaries averaging 12.3 reimbursed services and non-white beneficiaries averaging 9.9 reimbursed services.

A difference of over three reimbursed services per beneficiary is evident between the highest census region—the West, with an average of 13.8 reimbursed services per beneficiary—and the lowest region—the North Central, with an average of 10.5 reimbursed services per beneficiary (Table 9, col. b).

By State, the range was from a low of 7.5 reimbursed services per beneficiary in Montana to a high of 15.7 reimbursed services per beneficiary in Arkansas. The States with the highest and lowest average number of reimbursed services per beneficiary were:

A correlation coefficient was computed between reimbursement per beneficiary and the average number of reimbursed services per beneficiary and was found significant at .61 (P ≤ .05).

Summary of Factors Significantly Correlated With Rb

Reimbursement per beneficiary in an area is highly correlated with the proportion of beneficiaries who met the deductible, with the average allowed charge per service, and with the average number of services per beneficiary, as summarized below:

Summary and Discussion

This study indicates that several factors are related to the geographic and demographic variations found in Medicare reimbursements for physicians' services. The range in average allowed charges across States was greater than the range found in a previous study of prevailing specialist fee levels for 29 frequently performed procedures. Evidently, factors that are not reflected in the specialist fee index—including non-specialist fees, the mix of services, and billing and carrier practices—have a significant impact on average allowed charges. This finding is important in light of the economic index which was designed to limit the allowed charge for specific services reimbursed if there is a shift in the mix of services to higher priced services, or if the number of services increases, total Medicare reimbursements per beneficiary could continue to rise at an Inflationary rate.

Differences in average allowed charges are very important because they have a multiplicative effect on differences in Medicare reimbursements. That is, average allowed charges affect reimbursements and also affect the proportion of beneficiaries who reach the deductible. In low price areas, beneficiaries have a lower probability of reaching the $60 of allowed charges and receiving benefits compared to beneficiaries in high price areas. This result raises the question of equity, especially as it relates to disparities by State which are likely to persist year after year. The highest priced areas tend to be the same areas each year, and these areas will have the highest percentage of Medicare beneficiaries who receive benefit payments each year; the reverse is also true. Some areas will have the lowest percentage of beneficiaries who receive Medicare benefits year after year.

The results of a tabulation (from the ongoing Medicare Statistical System) of beneficiaries who met the Part B deductible in 1975, 1976, 1977, and 1978 are shown in Table 10. States are ranked according to the percentage of beneficiaries who met the Part B deductible, 1975-1978.

Table 10

Medicare Beneficiaries: Percent of Aged Persons Ever Enrolled Each Year, Who Met the Part B Deductible, and Rank, by State, 1975-1978

Area of Residence	1975		1976		1977		1978
	Percent	Rank	Percent	Rank	Percent	Rank	Percent	Rank
United States	50.0	–	52.7	–	54.8	–	56.6	–
Northeast	52.8	–	55.9	–	57.9	–	59.9	–
New England	–	–	–	–	–	–	–	–
Maine	45.9	34	50.4	28	54.2	23	56.6	21
New Hampshire	49.9	21	52.0	23	55.8	19	57.7	17
Vermont	51.3	17	54.5	18	58.6	11	58.9	16
Massachusetts	52.0	15	55.4	14	57.7	14	60.0	12
Rhode Island	58.7	2	63.3	1	66.3	1	68.9	1
Connecticut	50.7	20	54.9	15	57.3	15	59.4	15
Mid Atlantic	–	–	–	–	–	–	–	–
New York	55.5	7	58.6	6	60.2	7	61.7	7
New Jersey	53.2	10	56.1	11	58.1	12	60.0	10
Pennsylvania	49.8	22	52.5	21	54.5	22	56.9	19
North Central	46.1	–	48.9	–	51.0	–	52.9	–
East North Central	–	–	–	–	–	–	–	–
Ohio	45.4	36	47.8	37	49.9	36	51.8	36
Indiana	45.0	37	48.0	36	49.3	41	51.0	41
Illinois	42.7	46	45.6	45	47.8	46	49.3	46
Michigan	52.6	13	55.6	12	57.9	13	60.1	9
Wisconsin	44.5	39	47.6	38	49.4	39	51.7	38
West North Central	–	–	–	–	–	–	–	–
Minnesota	47.9	26	51.4	24	53.4	28	55.0	27
Iowa	44.1	42	45.7	44	49.4	40	51.8	37
Missouri	45.8	35	48.6	35	50.0	35	51.5	39
North Dakota	53.1	11	56.7	10	58.9	9	59.6	14
South Dakota	40.1	50	42.7	50	44.4	50	47.8	50
Nebraska	41.0	48	44.0	48	45.8	48	48.2	49
Kansas	52.2	14	55.5	13	57.2	16	60.0	10
South	47.8	–	50.4	–	52.6	–	54.5	–
South Atlantic	–	–	–	–	–	–	–	–
Delaware	47.4	29	50.7	26	54.2	23	55.9	24
Maryland	50.9	19	54.7	17	56.0	17	56.9	20
District of Columbia	56.7	3	59.8	3	61.9	3	63.3	4
Virginia	43.3	45	46.9	41	49.5	38	52.1	35
West Virginia	40.8	49	43.7	49	45.8	48	50.7	42
North Carolina	43.5	43	45.5	46	48.3	44	50.4	45
South Carolina	43.4	44	46.9	42	49.2	42	50.7	42
Georgia	47.1	30	48.9	32	52.0	30	53.6	32
Florida	55.7	6	58.4	7	60.6	6	62.7	6
East South Central	–	–	–	–	–	–	–	–
Kentucky	37.4	51	41.1	51	42.7	51	44.5	51
Tennessee	42.3	47	45.3	47	48.0	45	49.3	46
Alabama	46.5	33	48.8	33	51.1	34	53.8	30
Mississippi	44.4	40	47.4	39	49.6	37	51.4	40
West South Central	–	–	–	–	–	–	–	–
Arkansas	47.1	31	50.4	27	52.5	29	54.4	28
Louisiana	44.8	38	47.4	40	48.6	43	50.6	44
Oklahoma	47.5	28	49.8	30	51.7	32	52.3	34
Texas	51.3	18	52.6	19	54.6	21	55.9	26
West	56.6	–	59.0	–	60.8	–	61.9	–
Mountain	–	–	–	–	–	–	–	–
Montana	48.4	25	52.3	22	54.0	25	54.4	29
Idaho	46.5	32	48.8	34	51.5	33	53.7	31
Wyoming	44.1	41	46.4	43	47.4	47	48.4	48
Colorado	54.2	9	57.5	8	59.4	8	61.1	8
New Mexico	48.5	24	51.2	25	53.5	27	56.0	23
Arizona	54.5	8	56.8	9	58.9	9	60.0	13
Utah	47.6	27	49.9	29	51.7	31	53.5	33
Nevada	52.9	12	54.9	16	56.0	18	57.5	18
Pacific	–	–	–	–	–	–	–	–
Washington	56.6	5	58.9	5	61.0	5	63.0	5
Oregon	49.2	23	52.6	20	55.3	20	56.5	22
California	59.8	1	61.9	2	63.5	2	64.3	2
Alaska	51.8	16	49.6	31	53.8	26	55.9	25
Hawaii	56.6	4	59.8	4	61.3	4	63.7	3

Information is derived from the master health insurance enrollment file, based on a five-percent sample of enrolled persons. Percent meeting the Part B deductible each year was calculated by dividing the total number of persons who met the Part B deductible by the total number of persons enrolled that year. (All other tables shown in this report use a July 1 enrollment count to derive the percent that met the deductible and to derive per beneficiary amounts.) The State with the highest percentage meeting the deductible is ranked “1” and the lowest is ranked “51.”

As indicated below, the five top ranked areas in 1975 (California, Rhode Island, District of Columbia, Hawaii, and Washington) hardly varied in their respective positions in 1976, 1977, or 1978. This was also true of the States ranking lowest in the percentage of beneficiaries who met the deductible in 1975 (Kentucky, South Dakota, West Virginia, Nebraska, and Tennessee). Their respective ranks hardly changed in the following years. In the highest ranking State in 1978—Rhode Island—a Medicare beneficiary had a probability of nearly seven out of 10 of exceeding the deductible whereas in the lowest ranking State—Kentucky—the probability was 4.5 out of 10.

The consistency in the results on meeting the deductible has implications not only for the Medicare program but for other public health insurance programs that may be enacted. Most of the proposals for national health insurance, and especially for catastrophic insurance, include nationally-set premiums, deductibles, and coinsurance. Yet, as these data show, the deductible feature can result in wide geographic disparities in benefit payments.

Some policy analysts have suggested that the geographic variations in Medicare reimbursements should be reduced. For Medicare's Part B program, one remedy could be to vary the monthly premiums, setting the premium higher in high price areas and lower in low price areas. This solution could make cost-sharing more equitable but would have no impact on the proportion of beneficiaries who reach the deductible and receive reimbursements.

Another option would be to vary the deductible by area. To determine the effect of this option a special tabulation was run to see what changes would occur in reimbursements in California (the highest reimbursement area) if the deductible were raised to $120. The impact of this change would be very significant on the percentage of beneficiaries who exceeded the deductible. The percentage would fall from 61 percent with the deductible as it is at $60 to only 45 percent with the deductible at $120. Reimbursement per beneficiary would drop from the actual $197 with the deductible at $60 to $171 with the deductible at $120.

Another factor that has a significant impact on Medicare reimbursements—the number of services received—requires more study. This analysis of the average number of services is limited because the claims system does not have information about the number of services used by persons who did not receive Medicare reimbursements. Some of the differences in the number of reimbursed services per beneficiary shown in this study reflect the differential impact of the deductible. Yet, it cannot be assumed that if the deductible were eliminated, Medicare beneficiaries would have access to and receive a relatively similar number of Medicare covered physicians' services throughout the nation. Future study is needed to determine demographic and geographic variations in use of physicians' services by the total beneficiary population and to analyze the factors that influence variations in the number of services received by beneficiaries, including the demand for services and the supply of services available to the beneficiary population.

Technical Note

Non-Sampling Error

Differences between data from the Bill Summary record system and from the administrative payment record system reflect sampling and non-sampling errors as well as the omission in the Bill Summary data of claims submitted on the 1554 and 1556 claims forms. On a national basis, the average reimbursement from the Bill Summary ($131) was 6.3 percent lower than the average reimbursement from the payment records ($139; see Table A). It is estimated that about three percent of reimbursements are made from the 1554 and 1556 claims forms nationally. On a State level, the 1554 and 1556 claims could account for more or less than three percent. Although estimates are not available for each State, it is known that over 20 percent of reimbursements made by the District of Columbia carrier are based on the 1554 and 1556 claims forms. To alert the reader to reimbursement figures in the Bill Summary columns that appear low (arbitrarily defined as 14 percent below reimbursement from the payment record system) they have an asterisk. In such cases, the percentage of persons who received reimbursements generally appears low also. If the reimbursement from the Bill Summary does not appear low but the percentage of persons who received reimbursements is low, that figure has an asterisk also. It can be observed that most of the States with asterisks are small States which are likely to have higher sampling errors.

Sampling Error*

The data used in this paper are estimates based on a one percent sample of the enrolled population and hence are subject to sampling variability. Tables B through H will enable the reader to obtain approximate standard errors for the estimates in this paper. The standard error is primarily a measure of sampling variability—that is, of the variation that occurs by chance because a sample rather than the whole population is used. To calculate the standard errors at a reasonable cost for the wide variety of estimates in this paper, it was necessary to use approximation methods. Thus, these tables should be used only as indicators of the order of magnitude of the standard errors for specific estimates.

Table B

Approximate Standard Error of Estimated Dollars

[in thousands]
Estimated Dollars	Standard Error
$1,000	$330
2,000	470
3,000	580
5,000	750
7,000	900
10,000	1,100
20,000	1,500
30,000	1,900
50,000	2,500
70,000	2,900
100,000	3,500
200,000	5,000
300,000	6,200
500,000	8,100
700,000	9,600
1,000,000	12,000
2,000,000	16,000
3,000,000	20,000
5,000,000	26,000

The sample estimate and an estimate of its standard error permit us to construct interval estimates with prescribed confidence that the interval includes the average result of all possible samples (for a given sampling rate).

To illustrate, if all possible samples were selected, if each of these were surveyed under essentially the same conditions, and if an estimate and its estimated standard error were calculated from each sample, then:

Approximately 2/3 of the intervals from one standard error below the estimate to one standard error above the estimate would include the average value of all possible samples. We call an interval from one standard error below the estimate to one standard error above the estimate a 2/3 confidence interval.

Approximately 9/10 of the intervals from 1.6 standard errors below the estimate to 1.6 standard errors above the estimate would include the average value of all possible samples. We call an interval from 1.6 standard errors below the estimate to 1.6 standard errors above the estimate a 90 percent confidence interval.

Approximately 19/20 of the intervals from two standard errors below the estimate to two standard errors above the estimate would include the average value of all possible samples. We call an interval from two standard errors below the estimate to two standard errors above the estimate a 95 percent confidence interval.

Almost all intervals from three standard errors below the sample estimate to three standard errors above the sample estimate would include the average value of all possible samples.

The average value of all possible samples may or may not be contained in any particular computed interval. But for a particular sample, one can say with specified confidence that the average of all possible samples is included in the constructed interval.

The relative standard error is defined as the standard error of the estimate divided by the value being estimated. In general, small estimates, estimates for small subgroups, and percentages or means with small bases tend to be relatively unreliable. The reader should be aware that some of the estimates in this paper may have high relative standard errors.

The use of Tables B and C is straightforward. For example, the standard error of an estimated $100 million reimbursement is found to be $3.5 million. Simple linear interpolation may be used for values not tabled.

Table C

Approximate Standard Error of Estimated Number of Persons

Estimated Number of Persons	Standard Error
100	100
200	140
300	170
500	220
700	260
1,000	320
2,000	450
3,000	550
5,000	710
7,000	840
10,000	1,000
20,000	1,400
30,000	1,700
50,000	2,200
70,000	2,600
100,000	3,200
200,000	4,500
300,000	5,400
500,000	7,000
700,000	8,200
1,000,000	9,800
2,000,000	14,000
3,000,000	16,000
5,000,000	20,000
7,000,000	22,000
10,000,000	24,000
12,000,000	24,000

Table D contains the relative standard error of dollars per service and requires knowledge of the number of services in the base. The number of services can be derived by multiplying the number of users in Table I or J by the number of services per user in Table 8 or 9. To illustrate its use, assume we have an estimate of $18 per service based on 7,000,000 services. The relative standard error is .020 and the standard error .020 × $18 = $.36.

Table D

Approximate Relative Standard Error of Dollars per Service

Base of Rate (service in thousands)	Relative Standard Error
10	.51
20	.38
30	.29
50	.22
70	.20
100	.17
200	.12
300	.096
500	.076
700	.063
1,000	.054
2,000	.038
3,000	.031
5,000	.025
7,000	.020
10,000	.017
20,000	.012
30,000	.010
50,000	.0076
70,000	.0065
100,000	.0054
200,000	.0038

Table I

Number of Users by Age, Race, and Sex

Age, Race, and Sex	Number of Users
Total	10,821,900
Age:
65-69	3,027,800
70-74	2,892,600
75-79	2,237,500
80-84	1,560,800
85 and over	1,103,200
Race:
White	9,889,900
Other races	748,400
Sex:
Men	4,157,000
Women	6,664,900

Table J

Number of Users by Area of Residence

Area of Residence	Number of Users
United States	10,821,900
Northeast	2,827,800
New England	697,400
Maine	58,700
New Hampshire	43,100
Vermont	28,900
Massachusetts	334,500
Rhode Island	71,800
Connecticut	160,400
Mid Atlantic	2,130,400
New York	1,062,600
New Jersey	413,800
Pennsylvania	654,000
North Central	2,713,500
East North Central	1,805,600
Ohio	467,800
Indiana	237,900
Illinois	467,500
Michigan	397,400
Wisconsin	235,000
West North Central	907,900
Minnesota	205,000
Iowa	164,100
Missouri	259,900
North Dakota	40,000
South Dakota	32,100
Nebraska	75,300
Kansas	131,500
South	3,278,400
South Atlantic	1,664,300
Delaware	25,700
Maryland	135,200
District of Columbia	31,700
Virginia	177,000
West Virginia	79,300
North Carolina	221,200
South Carolina	98,700
Georgia	196,400
Florida	699,100
East South Central	585,800
Kentucky	127,700
Tennessee	183,400
Alabama	158,500
Mississippi	116,200
West South Central	1,028,300
Arkansas	131,700
Louisiana	142,500
Oklahoma	154,300
Texas	599,800
West	1,996,400
Mountain	412,600
Montana	32,500
Idaho	36,300
Wyoming	12,700
Colorado	109,800
New Mexico	45,200
Arizona	114,100
Utah	39,100
Nevada	22,900
Pacific	1,583,800
Washington	197,700
Oregon	126,100
California	1,223,600
Alaska	4,200
Hawaii	32,200

Tables D through G are for estimated percentages or means and also require knowledge of the number in the base of the estimate. The number of beneficiaries enrolled can be found in HCFA Publication No. 062, MEDICARE: Health Insurance for the Aged and Disabled, 1975, Section 2: Persons Enrolled In the Health Insurance Program. Other bases can be found in the appropriate table of this report. To illustrate their use, Table 8 shows the average number of services per user for age group 65-69 to be 22.3. The following steps, using double linear interpolation, show how to obtain the standard error of this estimate.

Table G

Approximate Standard Error of Number of Services per Beneficiary or per User

Base of Rate (persons in thousands)	Services per Person
	5	7	10	20	30	40
1	5.0	5.9	7.1	10	12	14
2	3.5	4.2	5.0	7.1	8.8	10
3	2.9	3.4	4.1	5.8	7.2	8.3
5	2.3	2.7	3.2	4.5	5.6	6.5
7	1.9	2.3	2.7	3.8	4.7	5.5
10	1.6	1.9	2.3	3.2	4.0	4.6
20	1.1	1.3	1.6	2.3	2.8	3.3
30	.93	1.1	1.3	1.9	2.3	2.7
50	.72	.86	1.0	1.5	1.8	2.1
70	.61	.73	.87	1.2	1.5	1.8
100	.51	.61	.73	1.0	1.3	1.5
200	.36	.43	.52	.73	.90	1.0
300	.30	.35	.42	.60	.74	.85
500	.23	.27	.33	.47	.57	.66
700	.20	.23	.28	.40	.49	.56
1,000	.16	.19	.23	.33	.41	.47
2,000	.12	.14	.17	.24	.29	.33
3,000	.096	.11	.14	.19	.24	.27
5,000	.074	.088	.11	.15	.18	.21
7,000	.063	.075	.089	.13	.16	.18
10,000	.053	.063	.075	.11	.13	.15
20,000	.037	.044	.053	.075	.093	.11

Table H shows the number of users in the base to be 3,027,800.

Table H

Approximate Standard Error of Percent Distribution of Persons

Base of Percent (persons in thousands)
Percent	1	2	3	5	7	10	20	30	50	70	100	200	300	500	700	1,000	2,000	3,000	5,000	7,000	10,000	20,000
1 or 99	3.2	2.2	1.8	1.4	1.2	1.0	.71	.58	.45	.38	.32	.22	.18	.14	.12	.10	.071	.058	.045	.038	.032	.022
2 or 98	4.5	3.2	2.6	2.0	1.7	1.4	1.0	.82	.63	.53	.45	.32	.26	.20	.17	.14	.10	.082	.063	.053	.045	.031
3 or 97	5.5	3.9	3.2	2.5	2.1	1.7	1.2	1.0	.78	.66	.55	.39	.32	.25	.21	.17	.12	.10	.077	.065	.054	.038
4 or 96	6.3	4.5	3.7	2.8	2.4	2.0	1.4	1.2	.89	.76	.63	.45	.37	.28	.24	.20	.14	.12	.089	.075	.063	.044
5 or 95	7.1	5.0	4.1	3.2	2.7	2.2	1.6	1.3	1.0	.85	.71	.50	.41	.32	.27	.22	.16	.13	.099	.084	.070	.049
7 or 93	8.4	5.9	4.8	3.7	3.2	2.6	1.9	1.5	1.2	1.0	.84	.59	.48	.37	.32	.26	.19	.15	.12	.099	.082	.057
10 or 90	10	7.1	5.8	4.5	3.8	3.2	2.2	1.8	1.4	1.2	1.0	.71	.58	.45	.38	.32	.22	.18	.14	.12	.098	.067
20 or 80	14	10	8.2	6.3	5.3	4.5	3.2	2.6	2.0	1.7	1.4	1.0	.82	.63	.53	.45	.31	.26	.20	.16	.14	.090
30 or 70	17	12	10	7.8	6.5	5.5	3.9	3.2	2.4	2.1	1.7	1.2	1.0	.77	.65	.54	.38	.31	.24	.20	.16	.10
40 or 60	20	14	12	8.9	7.6	6.3	4.5	3.7	2.8	2.4	2.0	1.4	1.2	.89	.75	.63	.44	.36	.27	.22	.18	.11
50	22	16	13	10	8.5	7.1	5.0	4.1	3.2	2.7	2.2	1.6	1.3	.99	.84	.70	.49	.39	.30	.25	.20	.12

In Table F we find:

Table F

Approximate Standard Error of Percent Distribution of Dollars

Percent	Base of percent (dollars in millions)
	$1	$2	$3	$5	$7	$10	$20	$30	$50	$70	$100	$200	$300	$500	$700	$1,000	$2,000	$3,000	$5,000
1 or 99	3.3	2.4	2.0	1.5	1.3	1.0	.78	.64	.50	.42	.36	.26	.21	.17	.14	.12	.088	.075	.061
2 or 98	4.7	3.3	2.7	2.1	1.8	1.5	1.1	.90	.70	.60	.50	.36	.30	.23	.20	.17	.12	.10	.086
3 or 97	5.7	4.1	3.3	2.6	2.2	1.9	1.3	1.1	.86	.73	.61	.44	.36	.28	.24	.21	.15	.13	.10
5 or 95	7.3	5.2	4.3	3.3	2.8	2.4	1.7	1.4	1.1	.93	.78	.56	.46	.36	.31	.26	.19	.16	.13
7 or 93	8.5	6.1	5.0	3.9	3.3	2.8	2.0	1.6	1.3	1.1	.91	.66	.54	.42	.36	.31	.23	.19	.16
10 or 90	10	7.2	5.9	4.6	3.9	3.3	2.3	1.9	1.5	1.3	1.1	.77	.63	.50	.43	.36	.26	.22	.18
20 or 80	13	9.5	7.8	6.1	5.2	4.4	3.1	2.6	2.0	1.7	1.4	1.0	.84	.66	.56	.48	.35	.29	.24
30 or 70	15	11	8.9	7.0	5.9	5.0	3.6	2.9	2.3	1.9	1.6	1.2	.96	.75	.64	.54	.40	.33	.27
50	16	12	9.7	7.5	6.4	5.4	3.9	3.2	2.5	2.1	1.8	1.3	1.0	.81	.69	.59	.43	.36	.29

Standard error for 20 services per user and three million users - .19.

Standard error for 30 services per user and three million users - .24.

The interpolated standard error for 22.3 services per user and three million is .20.

Again in Table F we find:

Standard error for 20 services per user and 5 million users - .15.

Standard error for 30 services per user and 5 million users - .18.

The interpolated standard error for $23.06 and 10 million is .16.

Interpolating between .20 and .16 for the 3,027,800 users in the base, we find the standard error of the estimate to be .199 which rounds to .20 services per user.

Highest States:	Average Reimbursement Per Beneficiary1
California	$197
Alaska	188
Arizona	173
New York	173
District of Columbia	173
Lowest States:
Montana	$ 65
Kentucky	65
West Virginia	71
South Dakota	76
South Carolina	86

Data presented in this report by State are crude rates. They have not been standardized by age or sex. Age-sex indexes developed for each State by HCFA's Office of the Actuary indicate that average reimbursements per person enrolled in Part B should differ from the U.S. average by no more than three percent because of differences in the proportionate distribution of beneficiaries by age and sex.

Census Region	Percent of Beneficiaries Exceeding the Deductible
United States	50
Northeast	52
North Central	45
South	48
West	57

	Percentage of Beneficiaries Exceeding the Deductible
Highest States
Rhode Island	64
Alaska	61
California	61
Hawaii	58
Florida	57
Lowest States
Kentucky	35
Wyoming	38
West Virginia	38
South Dakota	38
Nebraska	40

Highest States	Average Allowed Charge: All Types Combined
Nevada	$21.55
District of Columbia	19.30
Alaska	18.60
Connecticut	18.36
California	18.02
Lowest States
Mississippi	$ 9.10
Arkansas	10.18
North Dakota	10.71
New Hampshire	10.78
Delaware	11.52

Highest Fee Levels	Specialist Fee Index	Medicare Allowed Charge Index
New York	132	117
Alaska	132	121
Nevada	125	140
California	120	117
District of Columbia	116	126
Florida	112	111
New Jersey	112	107
Arizona	109	110
Lowest Fee Levels	Specialist Fee Index	Medicare Allowed Charge Index
Mississippi	73	59
Kentucky	76	78
South Dakota	77	83
North Dakota	79	70
Nebraska	80	92
West Virginia	80	76
Maine	80	78
Vermont	80	76

Highest States	Average Number of Reimbursed Services Per Beneficiary
Arkansas	15.7
Mississippi	15.6
California	15.2
Rhode Island	15.2
Texas	14.8
Lowest States
Montana	7.5
Kentucky	7.9
Maryland	8.5
South Dakota	8.7
West Virginia	8.7

Correlation of Reimbursement per Beneficiary with:
a) Percentage who met the deductible	.78
b) Average allowed charge	.76
c) Average number of reimbursed services per beneficiary	.61

Percentage of Aged Beneficiaries Ever Enrolled Who Met the Part B Deductible and Rank by State

State	1975		1976		1977		1978
	Percent	Rank	Percent	Rank	Percent	Rank	Percent	Rank
California	59.8	1	61.9	2	63.5	2	64.3	2
Rhode Island	58.7	2	63.3	1	66.3	1	68.9	1
District of Columbia	56.7	3	59.8	3	61.9	3	63.3	4
Hawaii	56.6	4	59.8	4	61.3	4	63.7	3
Washington	56.6	5	58.9	5	61.0	5	63.0	5

Percentage of Aged Beneficiaries Ever Enrolled Who Met the Part B Deductible and Rank by State

State	1975		1976		1977		1978
	Percent	Rank	Percent	Rank	Percent	Rank	Percent	Rank
Kentucky	37.4	51	41.1	51	42.7	51	44.5	51
South Dakota	40.1	50	42.7	50	44.4	50	47.8	50
West Virginia	40.8	49	43.7	49	45.8	48	50.7	42
Nebraska	41.0	48	44.0	48	45.8	48	48.2	49
Tennessee	42.3	47	45.3	47	48.0	45	49.3	46

Table E

Approximate Standard Error of Estimated Dollars per Beneficiary

Base of Rate (beneficiaries in thousands)	Dollars per Beneficiary
	$50	$70	$100	$200
1	50	70	100	140
2	50	60	72	100
3	41	49	59	84
5	32	38	46	66
7	27	33	39	56
10	23	27	33	47
20	16	20	24	34
30	14	16	19	28
50	11	13	15	22
70	9.0	11	13	18
100	7.5	9.0	11	15
200	5.4	6.4	7.7	11
300	4.4	5.3	6.3	9.0
500	3.5	4.1	4.9	7.1
700	2.9	3.5	4.2	6.0
1,000	2.5	2.9	3.5	5.0
2,000	1.8	2.1	2.5	3.6
3,000	1.5	1.7	2.1	3.0
5,000	1.1	1.3	1.6	2.3
7,000	.96	1.1	1.4	2.0
10,000	.81	.96	1.2	1.7
20,000	.58	.69	.82	1.2