OBJECTIVES: We investigate whether physicians' financial incentives influence the delivery of health care services. In particular, we analyze the potential spillover effect of generous reimbursement from commercial insurance plans on health service utilization within the U.S. Medicare program from 2007-2009.

METHODS: Commercial plan generosity was measured with a metro area-level index of commercial reimbursement adjusted for the cost of providing care obtained from the National Academy of Medicine. To measure utilization, we analyzed Medicare Part B claims on physician and outpatient care for a random 20% sample of beneficiaries, focusing on elderly individuals with index diagnoses of back pain or cardiovascular disease in 2007. Total condition-specific reimbursement for each Medicare beneficiary over 2007-2009 was regressed on commercial plan generosity, controlling for age, race / ethnicity, gender, and chronic comorbidity. To address reverse causality between Medicare utilization and commercial generosity, we instrumented using insurer market concentration within metro areas.

RESULTS: A 10% increase in commercial plan generosity was associated with 16.1% lower Medicare reimbursement for back pain care (p < 0.01). At the service level, there were significant and substantial negative associations with physical therapy, myelogram chemonucleolysis, and back surgery. For cardiac care, there was no relationship between commercial plan generosity and total Medicare reimbursement.

CONCLUSIONS: Providers may respond to low reimbursement from commercial plans by shifting the volume of services within the Medicare program, in particular increasing total reimbursement for back pain care.