Estimating the effect of new technology on Medicare Part B expenditure and volume growth: do related procedures matter?

The new Medicare Part B physician reimbursement system requires the Health Care Financing Administration to consider how medical technology contributes to growth in service volume. One estimate of this effect has been made by the Physician Payment Review Commission (PPRC), which estimated how individual new technologies have influenced volume growth. This paper extends the PPRC analysis to include both new technology services and those services that are complementary, or related to, the new technology services. The results show that adjusting for related procedures can increase the estimated cost of new technology by as much as 50 percent. In addition, related procedures can increase the estimated share of volume growth attributable to new technology by as much as 42 percent. This implies that both new and related procedures should be used when implementing physician payment reforms.