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Commentary: the impact of Medicare coverage policies on health care utilization.

Traditional fee-for-service Medicare, by far the most popular choice of Medicare beneficiaries, lacks many of the tools that commercial health insurance and Medicare Advantage plans can use to control health care utilization. Prior authorization, selective contracting, utilization review, and capitation are generally absent from traditional Medicare. Furthermore, most beneficiaries are covered by supplemental health insurance. Supplemental plans cover many out-of-pocket payments, depriving Medicare of the ability to use cost-sharing to discourage overuse of medical services. Reimbursement can be an effective tool to control both utilization and expenditures. With Medicare's enormous market power, providers usually must accept the reimbursements it offers. As important as the ability to set reimbursement levels would seem to be, however, it is not a tool that the officials of the Centers for Medicare and Medicaid Services (CMS) can apply at will. CMS sets inpatient and outpatient reimbursement levels by formulas that it cannot easily modify or abandon (Medicare Payment Advisory Commission 2007). Congress, not CMS, sets basic parameters for provider reimbursement levels, and in recent years has chosen not to implement scheduled cuts in reimbursement. This experience has led to skepticism about the ability of reimbursement policy to control expenditures in the Medicare program.