Lagging doctor-related spending holds down medical cost growth

Although analysts expect visits to physicians to increase in 2013, patient spending on them is predicted to grow slowly.

By Emily Berry — Posted June 11, 2012

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Slow growth in spending on physicians — and by physicians — is going to play a major role in keeping growth in medical costs in check in 2013, according to a report issued in May by the health care arm of a major business consulting firm.

In a report aimed toward businesses that offer health benefits, PwC’s Health Research Institute predicts that overall medical cost growth will be flat in 2013, at 7.5%, the same as 2010 and 2012 — years in which costs came in lower than PwC had predicted. Though that percentage is still above the annual inflation rate of about 3%, PwC notes that the gap between health care inflation and the overall rate is narrowing. PwC analyzes its past surveys, conducts interviews with health and business leaders, and interprets others’ research to come up with its own conclusions.

PwC singled out physicians as the major reason that medical cost inflation is lower than it has been in the past.

Citing the Milliman Medical Index, created by another business consulting firm, PwC noted that physicians represented the largest share of private health insurance benefits spending, at 32%. But with 5.4% annual growth from 2007 to 2012, physicians also were the slowest-growing category of spending. Other studies have found spending on physicians becoming more restricted. The Bureau of Labor Statistics reported that the inflation rate for physician services has been below the overall rate for a full year, and various reports have seen declines in physician office visits during the last few years.

“We can now look at four years in a row of historically low growth rates in the health care sector, and that tells us something,” said Ceci Connolly, managing director of PwC Health Research Institute. The 2007-09 recession “has been deeper, and it’s been tougher to climb out of, and it’s very much affected physicians and hospitals. Many people who lost insurance coverage and even people who have health insurance, we know they have delayed some care, in part because they are worried about cost.”

The PwC report said pricing pressures on physicians will continue. “Workplace and retail clinics, telemedicine and mobile health tools continue to gain market share, because employers and consumers view them as cost-effective and convenient.”

Meanwhile, the report said physicians and physician-related spending on supplies is likely to be held back in 2013, in part because of the growing number of doctors working at hospitals. “Supplies can account for more than 40% of the cost of certain procedures. Recent hospital consolidation and physician employment are enabling administrators to move away from ‘physician preference’ purchasing and negotiate for significant savings. In addition, insurers are pressuring hospitals to hold down these expenses.”

However, PwC said it expects some increase in physician utilization as the economy slowly improves.

A report released a week before PwC’s looked more closely at utilization, as well as acuity of care and prices, to hone in on what is driving health spending increases, The analysis of billions of health care claims was conducted by the Health Care Cost Institute, a nonprofit research group formed in late 2011 to work with pooled health insurer claims data to identify health care cost drivers.

The group’s first report, based on claims data from 2009 and 2010 and weighted to produce national estimates, identified physician spending as among the slowest-growing segments of health spending. Per-capita spending on professional services (the category including physician care) rose from $1,439 in 2009 to $1,472 in 2010, a 2.3% increase that is lower than the overall per-capita spending growth rate of 3.3%, according to the HCCI.

The overall increase in spending seen from 2009 to 2010 was due to increasing prices, not sicker patients or higher volume, HCCI researchers found.

Drilling down into physician visits specifically, HCCI found that a reduction in visits to primary care physicians drove an overall slowdown in “professional services” utilization from 2009 to 2010. The number of primary care office visits per 1,000 insured patients fell by 5.2% from 1,660 in 2009 to 1,574 in 2010. The data also showed about a 0.5% decline in intensity of services provided by health care professionals. But prices for professional services rose by 3.1% during the period.

HCCI did not examine why prices rose while acuity and utilization went down. The professional services increase outpaced general inflation, which was 1.6% during the same period. The ?HCCI research looked at privately insured patient claims, while BLS numbers looked at all charges. Prices paid for physician services rose 1.3% between March 2011 and March 2012, and the CPI grew by 2.7%, the BLS said.

Meanwhile, research released in May by the Employee Benefit Research Institute showed that high premiums keep workers from signing up for health benefits at work, and that has meant the share of employees who are covered through their employer has not rebounded, even as unemployment dropped and the recession technically ended.

As of December 2007, 60.4% of workers had health insurance through work. In April 2011, that same measure was at 55.8%, according to the EBRI. Most but not all workers who don’t get health insurance at work find another source of coverage, said Paul Fronstin, PhD, director of the EBRI Health Research and Education Program. As has been true in the past, the rate at which employers offered coverage has held fairly steady, so it’s not that workers don’t have coverage available — rather, they don’t believe they can afford it.

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Where money on insured patients is spent

Physician services are a large portion of overall health spending for the privately insured. However, spending for professional services, which includes physicians, has been growing more slowly than other segments of health care. Inpatient and outpatient categories include only facility costs. Estimated average annual expenditures, per capita:

Spending category 2007 2008 2009 2010 Change
All categories $3,676 $3,895 $4,120 $4,255 3.3%
Inpatient $799 $841 $879 $893 1.6%
Outpatient $892 $972 $1,067 $1,126 5.5%
Professional $1,314 $1,375 $1,439 $1,472 2.3%
Prescription drugs $670 $707 $736 $765 4.0%

Source: “Health Care Cost and Utilization Report: 2010,” Health Care Cost Institute, May (link)

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External links

“Medical Cost Trend: Behind the Numbers 2013,” PwC Health Research Institute, May 2012 (registration required) (link)

“Health Care Cost and Utilization 2010,” Health Care Cost Institute, May (link)

“Employment-Based Health Benefits: Trends in Access and Coverage, 1997-2010,” Employee Benefit Research Institute, May (link)

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