Paying More for Primary Care: Can It Help Bend the Medicare Cost Curve?

Paying More for Primary Care: Can It Help Bend the Medicare Cost Curve?

Commonwealth Fund Issue Brief | March 2012 | By James D. Reschovsky, Arkadipta Ghosh, Kate A. Stewart, and Deborah Chollet

The national health reform law included a temporary five-year provision to boost Medicare payments for primary care services by 10 percent. This increase applied to office visits and other ambulatory care delivered by family practice physicians, general internists, geriatricians, pediatricians, nurse practitioners, clinical nurse specialists and physician assistants. Using a simulation model built on real-world data, researchers from HSC and Mathematica Policy Research evaluated what a permanent version of this fee increase would accomplish.

Simulation Results

The analysis projected that a permanent 10 percent increase in primary care fees would lead to an 8.8 percent jump in primary care visits. The overall cost of primary care visits would rise by 17 percent as a result. However, these higher primary care expenditures would produce savings elsewhere in the Medicare system that far exceeded the additional spending. The model estimated a return of more than six dollars in reduced costs for every additional dollar spent on primary care, once the full effects on treatment patterns were realized.

The bulk of savings came from fewer hospitalizations and less spending on post-acute care services. When patients had better access to primary care physicians, health problems were identified and managed earlier, reducing the need for expensive emergency and inpatient treatment down the line. The net effect was a projected drop in total Medicare spending of close to 2 percent.

Why Primary Care Investment Matters

Primary care had long been recognized as a cornerstone of effective health systems, yet Medicare payment rates for primary care services lagged behind those for specialty procedures. This payment gap discouraged medical graduates from choosing primary care careers and made it harder for existing primary care practices to remain financially viable. The simulation findings suggested that correcting part of this imbalance through higher fees could generate meaningful cost savings across the broader Medicare program.

The research also highlighted the mechanism through which primary care reduces downstream costs. Regular access to a primary care provider allows for ongoing management of chronic conditions, appropriate use of preventive services, and earlier intervention when health problems arise. These factors collectively reduce the likelihood that patients will end up in the hospital or require intensive post-acute rehabilitation.

Policy Considerations

The findings offered evidence that investing in primary care could serve as one tool for bending the Medicare cost curve under reasonable assumptions. While the temporary fee increase in the health reform law was set to expire after five years, the simulation results argued for making such an investment permanent. The projected savings on inpatient and post-acute services would more than offset the upfront increase in primary care spending.

Sources and Further Reading

This report was produced by researchers at HSC and Mathematica Policy Research and published through the Commonwealth Fund. The Center for Studying Health System Change was a nonpartisan policy research organization funded principally by the Robert Wood Johnson Foundation.