American College of Physicians: Internal Medicine — Doctors for Adults ®

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Growth in physician spending packs a political punch

A new CMS report shows that expenditures on physician services jumped 15% in one year

From the May ACP Observer, copyright 2005 by the American College of Physicians.

By Robert B. Doherty

According to a new report from the Centers for Medicare and Medicaid Services (CMS), expenditures on physician services increased 15% from 2003 to 2004. This increase was fueled by increased billings for longer, more complex office visits, greater use of minor procedures and imaging services, more laboratory tests, and increased use of prescription drugs in physician offices.

The CMS report has heightened concerns on Capitol Hill that spending on physician services is out of control and that "something" must be done to keep costs in check. The analysis is also making it much more difficult for ACP to persuade Congress to avert cuts from Medicare's sustainable growth rate (SGR) formula. As reported in last month's column, Medicare payments to physicians are projected to decline by 26% between 2006-2011. Those reductions stem from the flawed SGR formula, which triggers cuts in physician payments whenever overall service expenditures included in the SGR exceed growth in the U.S. economy.

The CMS' findings

According to the CMS, the overall 15.2% total increase in physician spending can be broken down as follows:

  • Higher spending for office visits contributed 4.4% to the total increase.
  • Minor procedures, 3.9%.
  • Imaging procedures, 2.8%.
  • Laboratory and other tests, 1.7%.
  • Physician-administered drugs, 1.6%.
  • "Major procedures," 0.5%.
  • "Other" services, 0.1%.

The CMS report does not say why spending increased. However, it does say that "understanding why Part B expenditures are rising so rapidly is of great concern" to the agency.

Spending on internal medicine visits

The apparent jump in the length and complexity of office visits is of particular significance for internal medicine because internists typically provide more Medicare office visits than any other specialty.

At first glance, the CMS report seems to suggest that internists lead the pack in increased billing for longer, more complex visits compared to other specialties. Between 2003 and 2004, internal medicine office visits accounted for 25% of the total increase in Medicare office visit spending, compared with 21% for family practice, 9% for cardiology, and 4% or less for other specialties.

However, further analysis of the CMS data by ACP's Regulatory and Insurer Affairs Department paints a different picture. Internal medicine contributed more because internists already provided a higher proportion of office visit expenditures than any other specialty. With higher baseline spending for internal medicine, any percentage increase from that baseline would have a greater impact on overall expenditures than would spending growth in other specialties that see fewer Medicare patients in their office and thereby start from a lower baseline.

A more accurate way to view the data is to look at spending growth for visits independent of each specialty's relative baseline share. How much did spending on office visits in each specialty increase if data are adjusted so that all specialties start out with the same baseline share? Using this analysis, the percentage growth in spending on internists' office visits between 2003 and 2004, although substantial, was actually lower than for any other major specialty. Internal medicine rose 13.8%, compared with15.5% for orthopedic surgery and urology, 17.1% for family practice, 17.4% for cardiology, and 20.7% for dermatology.

The CMS data also reported a consistent trend over the past several years of physicians billing more level 4 (CPT 99214) established patient office visits and fewer level 2 (CPT 99212) visits, while the number of level 3 visits (99213) remained relatively constant. This suggests that many office visits that in the past may have been billed as 99212s are now being billed as 99213s—and that many once billed as 99213s are now billed as 99214s.

Fallout for physicians and patients

Because overall spending grew at a much higher rate than the economy, the CMS estimates that the 2006 physician fee schedule update under the SGR will be minus 4.3%.

Medicare patients will also pay more next year through higher Part B premiums. Each year, Medicare Part B premiums are adjusted so beneficiaries pay 25% of the projected Part B expenditures for the subsequent year. The increase in expenditures for 2004 will result in monthly Part B premiums in 2006 climbing to $89.20, a 14% jump from the current premium of $78.20. This is on top of the 17% increase beneficiaries already experienced this year.

Any SGR fix would lead to an increase in overall physician expenditures, which in turn would drive up Part B premiums. If Congress enacts legislation to avert the 4.3% SGR cut, as ACP advocates, then beneficiaries would have to pay even more.

Political and policy implications

All of these numbers add up to a major political and policy challenge for the medical profession.

Many in Congress may conclude from the report that physicians are "abusing" the system, even though the CMS report offers no evidence that spending growth is excessive or inappropriate. Lawmakers may be less inclined to support an SGR fix—and less sympathetic to arguments that physicians cannot survive another round of cuts.

Because more spending would increase Part B PREMIUMS, lawmakers will worry about beneficiaries' reaction to even higher out-of-pocket costs associated with increased physicians' payments. And they may be inclined to tie any SGR fix to mandatory participation in pay-for-performance programs.

ACP fully understands the political and policy challenges created by the CMS report. The College is urging lawmakers not to jump to the rash conclusion that higher spending was inappropriate. We will be meeting with CMS officials to communicate our view that at least some increase in office visit spending may reflect a positive response to evidence-based guidelines. Those guidelines may be leading physicians to spend more time, appropriately, counseling patients on how to manage chronic disease—and thereby reduce other spiraling medical costs.

However, offering plausible explanations for why spending has increased will not be enough. The College will not back off on its insistence that Congress must halt the SGR cuts, but medicine's ability to avert such cuts may depend on our willingness to work with lawmakers and the CMS to fully understand the reasons behind the spending increases, based not on speculation but on evidence. If the evidence suggests that some spending is inappropriate, then medicine must be willing to step up to the plate and offer constructive solutions.

The work being done now by the College and others on demonstration programs that support evidence-based performance improvement and measurement offers a promising approach. By improving quality, we can potentially achieve greater efficiencies while providing better care. Congress needs to give these programs time to work and not overreact to the CMS report by enacting a "quick fix.

Robert B. Doherty is ACP's Senior Vice President for Governmental Affairs and Public Policy.

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