What's behind uptick in growth of spending on physicians

Washington The annual growth rate for spending on office-based physician services in 2011 accelerated slightly after postrecession lows, but the figure still was in line with three straight years of restrained overall spending growth throughout the system, according to federal actuaries.

Spending growth on physician services increased to 3.6% in 2011, up from 2.8% growth in 2010, the actuaries said in their annual national health expenditure report. Analysts linked the increase to utilization of more intense or complex services, but they noted that the figure appeared to be comparable with other sectors of the health care system — and in some cases was much lower.

National health spending totaled $2.7 trillion in 2011, according to the latest statistics available to the Centers for Medicare & Medicaid Services for its report, which appeared in the January Health Affairs. That amount represented a 3.9% increase from the previous year and a 17.9% share of the nation's total economy — figures that have remained steady since 2009 after several years of relatively large growth before the recent economic recession and continuing recovery period.

“Some sector-specific areas that were impacted by the recession were in our enrollment and coverage estimates, where we see enrollment in private health insurance declined by 11.2 million between 2007-10, the number of the uninsured increased by 7 million over this same period and Medicaid enrollment increased by 7.5 million from 2007-10,” said Micah Hartman, a statistician in the CMS Office of the Actuary.

The recession and the numbers of Americans losing coverage had a measurable impact on limiting spending growth in physician offices across the country, but the sector experienced slightly faster growth in 2011 as enrollments in private plans increased. Spending on physician and outpatient clinical services, and prescription drugs, rose at a faster rate in 2011 compared with 2010, while hospital and other health, residential and personal care spending grew at slower rates.

Hospital spending increased at a similar rate of growth in 2011 as the physician and outpatient clinical services category. However, growth in clinical services spending, including care delivered in ambulatory surgery centers and other outpatient facilities, outpaced physician office services.

Public programs taking up slack

Private insurers and Medicare remained the top two payers for physician and clinical services in 2011. Medicare spending grew 7.6% after growing only 3.2% in 2010. The CMS actuaries cited a growth spike in physician service volume and intensity in the second half of 2011 for the large gain after two years of unusually slower rates of spending growth.

One factor that could explain the jump in growth is the expansion of coverage for preventive benefits, Hartman said. Congress started requiring Medicare to cover certain preventive services, such as colonoscopies and mammograms, without charging patients additional out-of-pocket fees. CMS also created a new annual wellness visit benefit in Medicare that started in 2011.

The expiration of certain enhanced federal matching rates and continued fiscal pressures on state budgets led to slower growth in Medicaid spending and enrollment in 2011. The drop in federal match rates after stimulus funding ran out led to Washington spending 7.1% less on Medicaid, while states tried to make up the difference by contributing 22.2% more. Overall Medicaid spending growth fell to 2.5%, down from 5.9% in 2010. Enrollment growth also decelerated due to improving economic conditions that made people less dependent on Medicaid.

Other health programs have felt the effects of tighter state and local government budgets. Aggregate government spending on public health initiatives fell to $79 billion in 2011, a $300 million decrease that is the first drop in this category since federal officials started keeping track in 1960.

Full impact of ACA not yet felt

The Affordable Care Act has yet to have a significant influence on annual national health spending, but actuaries have detected the effects of some initial ACA provisions that were implemented in 2010 or 2011, CMS said. For instance, private health insurance spending and enrollment increased after insurers were required to cover dependents up to age 26 on their parents' health plans. An estimated 2.7 million dependents obtained coverage by 2011 and helped drive the first gain in private health insurance enrollment since 2007.

These insurance marketplace reforms are having a positive impact on patients, Dept. of Health and Human Services Secretary Kathleen Sebelius said in a statement. Net cost ratios for health insurance policies declined after the law started requiring most plans either to spend at least 80% of premiums on health services or quality improvement, or to pay rebates to enrollees. Insurers also must justify raising premiums by more than 10% in a year, a transparency provision that the department says has saved about $1 billion.

“I strongly urge the states, our partners, to continue the work to hold insurance companies accountable by reviewing and building the capacity to deny unreasonable health insurance rate increases,” Sebelius said.

Opponents of the reform law said the data show legislative and administrative changes to the health system during Obama's first term have failed to control costs.

“Instead of lower health insurance premiums for families, insurance premiums continue to rise,” a House Ways and Means Committee Republican spokesman said. “And instead of lower costs for employers, insurance premiums and compliance costs are skyrocketing.”

Premiums for those in nongroup markets are projected to increase by 10% to 20% because of the ACA reforms, according to a separate report in the January/February issue of the American Academy of Actuaries' Contingencies magazine.

Starting in 2014, the full effects of the ACA will be felt in the health care industry. Medicaid enrollment will expand in many states, and individuals will start purchasing health plans on federal- or state-run insurance exchanges, many with federal help. Patients gaining insurance will use more health care services because coverage will be more affordable, the report said.

Predicting future spending remains difficult for health policy analysts, said CMS Chief Actuary Richard Foster. For instance, there remains uncertainty about how many states will expand their Medicaid programs. For the states that do expand, physicians and hospitals are wary about Medicaid having paid low rates for care in the past.

There could be pent-up demand for health care services when an estimated 30 million more Americans gain coverage starting in 2014. Demand for health care also rises when personal incomes rise, which many hope will occur over the next few years, Foster said.

“All those reasons suggest faster growth in the future,” he said. “On the other hand … there is a growing amount of evidence that health care providers are getting it — getting that the future can't be the same way as the past. The future will have to involve greater efforts for efficiency than traditionally have been done.”

The Commonwealth Fund, a Washington think tank, appointed a commission with a goal of recommending policies that would hold health care spending growth to levels no higher than the rate of increase in the gross domestic product. In a January report, the commission detailed a strategy that includes payment reforms that promote value, policies to encourage better choices by consumers, and systemwide actions to reduce administrative costs and establish targets for growth.