Do Physicians Engage in Offsetting Behavior? Empirical Evidence from Medicare Part B

Historically, Medicare has operated under the assumption that health care providers respond to reductions in reimbursement through increased provision of services to offset declines in practice revenue; however, recent empirical work has found either small offsetting effects or evidence supporting a traditional supply response. Using multiple identification techniques and datasets, including distance matching a sample of physicians in close proximity but subject to distinct reimbursement rates and approximating physician practice costs, this study finds strong evidence in support of the offsetting assumption.