CMS reports spike in Medicare spending on physician services

The AMA attributes the rise to pressure to provide more preventive care and aggressive treatments.

By David Glendinning — Posted April 18, 2005

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Washington -- Some of the most basic services that physicians provide are coming under scrutiny as large spending increases on the outpatient side of Medicare are helping to put the program in a sticky financial situation.

From 2003 to 2004, Medicare expenditures under the physician fee schedule increased 15.2% -- a figure that is roughly twice as high as the largest growth percentage in recent years. The Centers for Medicare & Medicaid Services launched an investigation into the root causes of the spike and released preliminary data from the effort last month.

An unexpected increase in the number and intensity of office visits accounted for nearly 30% of the jump, followed closely by minor medical procedures at 26%. Within the latter category, the administration of outpatient drug treatments and physical therapy constituted a large portion of the spending boost. A rise in the number of beneficiaries and legislation to update physician reimbursements had little effect on the overall expenditure figure, CMS found.

Agency officials intimated that not all of the added dollars flowing to physician services are warranted.

"We would like to understand these concerning trends further, including which changes in utilization are likely to be associated with important health improvements and which ones have health benefits that may be more questionable," wrote Herb Kuhn, director of CMS' Center for Medicare Management, in a letter to the Medicare Payment Advisory Commission last month.

The spending increases have direct financial implications for beneficiaries. CMS estimated that premiums for enrollees, who foot about 25% of the outpatient bill, will rise to $89.20 per month in 2006. That figure is $1.50 more than Medicare trustees had projected just days earlier in their report on the program's financial health.

The Medicare trustees said they were caught off guard by the spike in physician services and now must play catch-up on the financing side to put the program on more stable footing.

But some doctors saw the trend developing before Medicare's fiscal managers did.

"As a clinician looking at these data, the simple answer is that this is not a surprise at all," said American Medical Association Chair J. James Rohack, MD, a cardiologist in Temple, Texas. Such a change is to be expected when Medicare presses doctors to administer more preventive services and provide more aggressive disease treatments, he said.

From a cardiologist's standpoint, for example, recent federal encouragement for getting seniors with high cholesterol on appropriate drug regimens has caused a noticeable increase in utilization, Dr. Rohack said. The need for lab tests and follow-ups often increases the annual frequency of office visits for such patients by a factor of three or four.

Meanwhile, the government points to often wide variations among doctors in the number and complexity of services rendered, even among physicians who practice in the same specialty. In a recent conference call with reporters, CMS Administrator Mark McClellan, MD, PhD, referenced studies by Dartmouth Medical School researcher John Wennberg, MD, MPH, which found that striking geographic differences exist in the level and quality of care in the hospital setting.

Part of the solution lies in developing better systems of care based on sound evidence-based medicine and close physician involvement, Dr. McClellan said.

"There are a lot of good programs out there that rely on more close monitoring by physicians to prevent complications and keep patients out of the hospital, save money and improve outcomes at the same time. We want to encourage more of that," he said.

"On the other hand, where there is more intensive use of these costly procedures, the procedures that [grew] very rapidly in 2004, we want to make sure that we're not encouraging doctors to do that when there are no important clinical consequences," Dr. McClellan added.

Comparing physicians to each other

Determining whether certain types of utilization are tied to increased patient health will require CMS to develop outcomes measures, a process that is expected to evolve over many years. But the agency also is taking a step that could produce results much sooner.

Along the lines of a recent MedPAC recommendation, federal officials expect to spend the next few months constructing claims-based measures designed to let doctors know how they compare with others in their field when it comes to the use of services.

"Showing doctors what their peers are doing and really discussing these issues much more frankly and directly with physicians is the start of any solution," Dr. McClellan said. "Physicians are the most knowledgeable people about what can make a difference in patients' health, and so that's the place I want to start in making sure we're getting the most for Medicare spending and making sure we're taking appropriate steps when it comes to Medicare Part B."

The process of sharing utilization data would be confidential, with only aggregate results made public, and would not affect physician payment. Since the initiative would be based on the Medicare claims that doctors are already filing, data collection would place little or no administrative burden on physicians, CMS' Kuhn said.

Dr. Rohack said the AMA was willing to work with CMS to investigate the root causes of utilization increases as long as the effort is done in an educational manner and not a punitive one.

The Association also recommends that any such initiative be large enough to consider cost drivers that are largely beyond doctors' control, such as physician liability premiums and patient expectations.

The government can rule out the possibility that doctors are providing more services to pad their wallets, Dr. Rohack said.

"Medicare doesn't cover our costs now anyway, so why would we increase the volume when we're not making any money on Medicare patients?" he asked.

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Utilization on the rise

Medicare expenditures on physician services increased more than 15% between 2003 and 2004. A new federal analysis finds that the bulk of this change is attributable to a rise in the number and complexity of office visits and a spike in minor procedures, a category that includes drug administration and physical therapy.

Portion of
to increase
Office visits 29% 4.4%
Minor procedures 26% 3.9%
Imaging 18% 2.8%
Laboratory tests 11% 1.7%
Drugs 11% 1.6%
Major procedures 3% 0.5%
Other 1% 0.1%
Total 100% 15.2%

Note: Numbers do not add up to total due to rounding.

Source: Centers for Medicare & Medicaid Services

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