Physician service growth rate slows, easing Medicare premium increase

Washington -- Medicare beneficiaries next year will not see their premiums rise as much as originally thought now that federal officials have downgraded their projections of how much doctor care is costing the program.

The standard 2007 monthly premium for Medicare Part B, which covers outpatient physician care, will increase by $5 to $93.50. The Centers for Medicare & Medicaid Services estimated in July that the premium would jump by nearly $10 to $98.40. The new figure will be the smallest increase in six years.

Beneficiaries will pay less because federal officials have revised the rate at which spending on physician care is increasing, said CMS Administrator Mark McClellan, MD, PhD. In particular, the growth rate for physician services in 2005 slowed compared with recent years, altering projections for the future.

CMS originally thought that the amount of services that doctors were billing was spiking, but now officials have realized that doctors simply were filing claims more efficiently and receiving payments more quickly. The effect of the higher efficiency made it look to actuaries as if doctors were boosting the total level of care they were prescribing to their patients.

The amount that seniors are expected to pay to receive coverage under the program is dependent in part on the amount and complexity of services that doctors provide. Because Part B premiums are calculated to cover 25% of the program's costs, any increases in physician services result in a rise in beneficiary cost sharing.

One of the biggest drivers for premium costs next year, however, will not be office-based doctor care but hospital outpatient care, Dr. McClellan said. Many of the services that hospital outpatient departments are providing to beneficiaries could be accomplished for less expense and hassle in the physician office setting, he said. Outpatient hospital spending represents 13% of total Part B spending but accounts for about 33% of the next year's premium increase, CMS reported.

The AMA said it was pleased by the lower-than-expected premium but noted that the development was not a surprise to physicians.

"CMS' announcement that the growth in Medicare Part B physician spending was less than anticipated is consistent with AMA estimates conducted earlier this year," said AMA Board Chair Cecil B. Wilson, MD.

The announcement marks a change for CMS, which in recent years has fingered physician spending as the main culprit in driving up Medicare expenditures. CMS officials had suggested that not all of the increases in the volume and intensity of physician care over that time were warranted.

Still, the agency is keeping its eye on doctors, as well as hospitals. Although the expected growth in spending on physician care next year is less than originally projected, the figure is still relatively high at nearly 5%, Dr. McClellan said.

Dr. Wilson said physicians have a legitimate explanation for such increases. "Longer lives, more Americans in Medicare and living with chronic diseases have naturally led to an increased need for Medicare physician services -- encouraged by the government through increased efforts to improve the health of America's seniors," he said.

Beneficiary cost sharing would go up even more in the future if Congress reverses scheduled annual cuts to physician reimbursements that are set to start in January. If lawmakers had reversed next year's 5.1% cut and decided to freeze rates at 2006 levels before CMS determined the premium amounts, the standard monthly premium for seniors would have been about another $1.50 higher.

If Congress decides to maintain current physician pay levels or turn the upcoming cut into an increase, the corresponding boost in Medicare spending will increase 2008 premiums.

Higher premiums for higher incomes

In 2007 seniors who have higher annual incomes will be expected for the first time to foot more of the Medicare Part B bill.

Individual seniors whose incomes are above $80,000 per year or married couples whose incomes top $160,000 will see an additional premium adjustment of between $12.30 and $67.90 per month on a sliding scale. This means that individual seniors making more than $200,000 per year and couples making more than $400,000 will pay the maximum possible 2007 premium of $162.10 per month.

The AMA supports this "income-relating" of Medicare premiums, which was required under the Medicare Modernization Act of 2003. CMS will phase in larger adjustments during the following two years, after which higher-income beneficiaries will pay between 35% and 80% of the total Part B cost instead of the standard 25%.

About 4% of Medicare Part B enrollees -- or between 1 million and 2 million people -- will be subject to the higher premium levels in 2007, though CMS expects about 9,000 of these beneficiaries to drop out of the program as the coverage costs go up.