Getting the price right: Medicare payment rates for cardiovascular services

Specialized, physician-owned cardiac hospitals have grown rapidly. Physicians have also expanded their capability to provide cardiovascular diagnostic services in their offices. In this paper we consider evidence of errors in Medicare's prices for hospital care and physician services and discuss ways to improve the accuracy of those prices. We find that recent proposals to change the inpatient prospective payment system would help dampen hospitals' financial incentives to favor some kinds of patients and related investments. For the physician fee schedule, we suggest that the Centers for Medicare and Medicaid Services (CMS) review the accuracy of prices for high-growth diagnostic services.