Pricing Distortions in Medicare’s Physician Fee Schedule and Patient Satisfaction with Care Quality and Access

Medicare adjusts its payments to physicians for geographic differences in the cost of operating a medical practice, but the method it uses is imprecise. We measure the inaccuracy in its geographic adjustment factors and categorize beneficiaries by whether they live where Medicare's formula is favorable or unfavorable to physicians. Then, using the 2001-2003 Medicare Current Beneficiary Survey, we examine whether differences in physician payment generosity, that is, whether favorable or unfavorable, influence the satisfaction ratings Medicare seniors assign to their quality of care and access to services. We find strong evidence that they do. Many beneficiaries live in payment-unfavorable areas and receive a less satisfying quality of care and less satisfying access to services than beneficiaries who live where payments are favorable to physicians.