Medicare physician spending growth worries U.S. officials

Washington -- Although Medicare spending on physician services did not rise as much last year as it did the year before, the increase was still large enough to catch the attention of federal officials looking to find more efficiency in the system.

The Centers for Medicare & Medicaid Services recently estimated that spending on physician services increased by 8.5% during 2005. In 2004, this rate of growth was 11.4%.

But the nearly three percentage point drop was not due to patients using fewer or less complex Medicare services. Instead, the change is largely attributable to decreased growth in beneficiary enrollment, spending shifts stemming from the Medicare drug benefit and lower reimbursement for physician-administered drugs and lab tests, CMS said.

All but one percentage point of the 8.5% increase is due to physicians prescribing more services to their Medicare patients and more intensive levels of services. Physicians stepped up both the number and complexity of basic services, such as follow-up visits; minor procedures, such as physical therapy; and screening tests, such as imaging scans.

The 16% growth in imaging service expenditures alone, for example, was nearly twice as high as the average rise in spending for all physician services. Doctors' greater reliance on CT scans and MRIs is one of the biggest spending drivers in this area, the agency said.

Such developments worry those who are charged with making sure the program is paying for what it views as the right patient care.

"Understanding the relatively rapid growth in these services, and determining whether there are ways to promote better health while slowing the rapid increase in use of these services, is an increasingly important issue," wrote Herb Kuhn, director of CMS' Center for Medicare Management, in an April 7 letter to the Medicare Payment Advisory Commission.

The agency had a similar reaction in last year's report about a surge in physician spending in 2004, which at the time was pegged at 15.2% instead of the final 11.4% figure announced earlier this month. CMS Administrator Mark McClellan, MD, PhD, said then that not all of the additional and more complex services prescribed by physicians may have been appropriate. The latest report could renew the determination of Medicare officials to find areas in which the program is paying for services that they perceive as unnecessary.

The American Medical Association disputed these assertions. Increases in the volume and intensity of physician services are good investments if they help maintain the health of seniors and the disabled and keep them out of the hospital, they said.

"Americans are living longer than ever with diabetes, kidney failure, heart disease, obesity and other serious chronic conditions, which naturally leads to an increased need for physician services," said AMA Chair Duane M. Cady, MD. "Medical advances, such as research breakthroughs, innovations in technology and a focus on preventive care, are improving the health of seniors, but they are also increasing the number of medical services."

Physician pay a factor

Kuhn used the letter to MedPAC as an opportunity to project that physician reimbursements will be cut 4.6% in 2007 under the current payment formula, the first of several planned reductions that are a direct result of physician spending exceeding predetermined limits.

The situation has physicians being pulled in two directions at once, Dr. Cady said.

"The government is asking physicians to do the impossible: Keep seeing patients and improve the quality of care, while accepting drastic cuts that don't come close to covering the cost of care," he said. "Many physicians are left with no choice but to limit the number of Medicare patients in their practices."

A 2005 MedPAC survey found that 25% of Medicare patients looking for a new physician had a problem finding one. A new AMA Member Connect survey shows that 73% of doctors would defer new medical equipment purchases and 65% would put off buying new information technology if the forecasted nine years of cuts proceed.

CMS also sees a problem not only with how much Medicare is paying physicians overall but also how it reimburses them in the first place.

"The current physician payment system focuses on payment for individual services but does not provide payments that support physician efforts to combine services furnished to beneficiaries efficiently in an episode of care, or furnished during a period of time to treat chronic disease," Kuhn wrote. "As a result, physicians may find it difficult to invest in activities like electronic record systems and support programs for high-risk patients that could enhance quality of care without increasing medical costs."

CMS said such a dilemma could be addressed with a physician performance measurement system that identifies not only quality of care but also efficiency of care. Such a system could be the precursor to a pay-for-performance program that reimburses physicians based on both factors.

But while the AMA and other physician groups said they are committed to improving the quality of care, they repeatedly have warned that performance measurement will initially entail stepping up exactly the types of services that CMS has identified as part of a troublesome spending trend.