The truth about Medicare physician spending

Most doctors will tell you that Medicare payments to doctors haven’t increased in a decade, and that doctors are turning away Medicare patients in droves. But they would be mistaken on both counts.

An authoritative compilation of current data from the Medicare Payment Advisory Commission shows what is really happening with Medicare physician spending:

Medicare spending per beneficiary on physicians’ fee schedule services steadily increased from 2001 to 2011.  In 2001, Medicare spent $1,374 per enrolled senior, and $1,160 per disabled enrollee; ten years later, it was $2,181 and $1,883 respectively.

Volume growth is the reason Medicare is spending more.  From 2000 through 2010, Medicare payment updates increased by only 8 percent (due principally to the Medicare SGR formula), compared to a 22 percent increase in physicians’ costs of delivering care as measured by the Medicare Economic Index. But overall spending per beneficiary on Medicare physician fee schedule services increased by 63.7 percent during the same ten-year period. How could that be?  Because the volume of services—the number of tests, visits and procedures ordered by physicians on their Medicare patient’s behalf—increased at a much faster rate, pushing overall spending per patient upward, even as payment rates didn’t keep up with inflation.

More diagnostic testing and procedures are the main culprits.  From 2000 through 2010, the volume of diagnostic tests increased by 89 percent, the volume of imaging by 81 percent, and the volume of procedures other than major surgery by 65 percent. The volume of major surgical procedures, and evaluation and management services (office, nursing home, home, hospital, and other visits), increased at a much lower rate of  35 percent.

Because of higher volume, physicians’ Medicare revenue has increased.  Even though the SGR has kept payment updates below inflation, MedPAC reports that “growth in the volume of services contributed more to the rapid increase in Medicare spending payment rate increases … both factors—updates and volume growth—combine to increase physician revenues.”

Medicare patients have better access to physicians than the privately insured.  In 2011, 74 percent of Medicare beneficiaries, and 71 percent of privately insured patients, reported “never” having to wait longer than they wanted to get an appointment for routine care. Medicare beneficiaries also reported more timely appointments for injury and illnesses. Only 6 percent of Medicare enrollees said they were looking for new primary care physician, compared to 7 percent of the privately insured, suggesting that “most people are either satisfied with current physician or did not have to look for one.”

A larger, but still comparatively small, number of Medicare patients reported trouble finding a primary care physician. Of the 6 percent of Medicare beneficiaries who were looking for a new primary care physician in 2011, 35 percent reported having trouble finding one—23 percent of them reporting their problem as “big” plus 16 pecent reporting their problem as “small.” The Commission notes that “although this number amounts to about 2 percent of to the total Medicare population reporting problems, the Commission is concerned about the continuing trend of greater access problems for primary care.”

I suspect that the first reaction of many physicians to these data will to insist that MedPAC must be wrong, that they know from their own experiences that Medicare payments haven’t kept pace with their costs and that they know of many doctors who are turning away Medicare patients.  And they may be right, in the sense that their own personal experiences may not match the data on national trends and the cumulative impacts of spending growth per patient and physician.

But just as good physicians don’t ignore or dismiss clinical data that challenges their own perceptions and experiences, the medical profession shouldn’t ignore the data on what is really going on with Medicare spending and access. The fact is that spending on physician services in the aggregate has grown rapidly, even with the SGR-imposed limits on payment updates, and the culprits are more testing, imaging, and procedures being ordered for each beneficiary. And despite some evidence of greater access problems for primary care, most Medicare patients—so far—are not having major problems getting appointments or finding a primary care physician or a specialist.

Armed with these data, Congress isn’t likely to spend hundreds of billions to just eliminate the SGR, absent a plan to control the volume of services. As MedPAC notes:

Volume growth increases Medicare spending, squeezing other priorities in the federal budget, and requiring taxpayers and beneficiaries to contribute more to the Medicare program . . . They are largely responsible for the negative updates required by the SGR formula. Rapid volume growth may be a sign that some services in the physician fee schedule are mispriced.

Recently, ACP’s President David Bronson, MD, FACP, told the House Energy and Commerce Committee about innovative, physician-led initiatives that could help solve the Medicare SGR problem, and today, he testified before the House Ways and Means on how ACP proposes “to transition from a fundamentally broken physician payment system to one that is based on the value of services to patients, building on physician-led initiatives to improve outcomes and lower costs.”

Ignoring the facts will not heal a broken payment system, but offering the medical profession’s own diagnosis and treatment plan informed by the evidence just might help.

Bob Doherty is Senior Vice President of Governmental Affairs and Public Policy, American College of Physicians and blogs at The ACP Advocate Blog.

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  • MarylandMD

    It isn’t always easy when you try to decipher the report of a PAC, but it appears that when they refer to “physician fees” they are are actually combining fees for “imaging,” “tests,” “major procedures,” E&M, and “other procedures”. When you look at the graph that breaks down the component fees (chart 7-8 in Chapter 7) you see that E&M and “major procedures” (surgery, I assume?) have a much, much more modest growth rate than “imaging,” “tests,” and “other procedures.” The hew and cry about the SGR-induced cuts comes mainly from the effect of the cuts on reimbursement for E&M services for physicians, especially primary care physicians who bill mainly if not exclusively for E&M. Why cut E&M when the main drivers of runaway costs are imaging, tests, and “other procedures?”

    Physicians have not stopped accepting Medicare patients in large numbers yet because congress keeps doing temporary patches to avert the SGR-mandated cuts to E&M. So it is no surprise that overall there hasn’t been a decline in access. Yet.

    If members of congress can’t see the impending disaster that would occur if they let the SGR mandate draconian cuts in reimbursement, especially for E&M, then they are bigger fools than the majority of Americans already think they are.

  • Peter Elias

    In general, I agree with this and find it well researched and presented. I have one quibble, from my perspective as a primary care physician.

    The complexity of medicine in general has increased dramatically. The sophistication and medical understanding of patients has increased dramatically. The emphasis on shared decision making (which takes much longer and is much harder than simply telling people what to do) is a new development. And yet, the compensation for cognitive services in a PCP setting has NOT increased to anywhere near the same degree.

    The result is pressure to see patients too fast, order labs and x-rays and other testing modalities instead of spending time on history and exam, give prescriptions or refer for expensive consults (with attendant further testing) instead of talking about the problem.

    I believe that if PCPs were paid appropriately for listening to and examining patients and the existing information, and then for carefully educating the patient about the medical implications and getting educated about the patient’s concerns and preferences, there would be a measurable and probably significant lowering of both volume and cost.

    So, when I say that Medicare has not increased what it pays me in a decade, what I mean is that I am doing a much harder and bigger job for which I am not fairly compensated. And, when I order all those labs and x-rays and arrange the referrals, Medicare pays more – BUT NOT TO ME.

    Just my 2 cents.

  • MarylandMD

    By the way, I aways get very nervous when a PAC claims to be telling “the truth.”

  • Jason Simpson

    Number of doctors per Medicare recipient per year in 1990: 7
    Number of docs per recipient in 2010: 23

    Nuff said. Thats why total payments to doctors keep going up, whereas the payments to each individual doctor stay flat or decrease every year.

    Our country has a tremendous doctor surplus. It is absurd that we have 23 doctors per patient in 2010 that did the same work that 7 doctors did in 1990.

    • Steven Reznick

      Suggest you read last weeks NY Times article on the physician shortage and future impending shortages of both primary care and specialty physicians

  • stlevine

    Sounds like the old story of the retailer who is losing money on every transaction but making it up on volume!

  • John C. Key MD

    Reading this post is a lot like listening to a political campaign speech–they will say ANYTHING. Twist those statistics, bundle different categories, and voila! The docs are getting paid more–who’d have thunk it? Meanwhile in primary care, one just can’t afford to see many–if any–Medicare patients, and it isn’t going to change for the better.

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