Healthcare Spending Growth Slows, but Not as Much for Physician Services, Says CMS

January 05, 2010

January 5, 2010 — Reflecting the downward pull of the recent recession, the rate of growth for healthcare spending decelerated from 6% in 2007 to 4.4% in 2008, the lowest growth rate since 1960, according to a report released today from the Centers for Medicare and Medicaid Services (CMS) and published in the January 2010 issue of Health Affairs.

In terms of sheer dollars, the tab for healthcare in 2008 came to $2.34 trillion, representing the outlays of individuals, government, businesses, and other groups.

Even with slower growth, healthcare spending is still the runaway train that pending healthcare reform legislation hopes to save from a wreck. As a percentage of the gross domestic product, healthcare spending rose from 15.9% to 16.2%, and its growth rate in 2008 exceeded that of the gross domestic product (GDP), which was 2.6% (before factoring out inflation).

"Health care spending as a percentage of GDP is rising at an unsustainable rate," Jonathan Blum, director of the Center for Medicare Management at CMS, stated in a press release. "It is clear that we need health insurance reform now."

In an era of ballooning federal deficits, federal government outlays for healthcare — primarily in the form of Medicare and Medicaid — rose 10.4%, according to the CMS report. "Despite the overall slowdown in national health spending growth, increases continue to outpace growth in the resources available to pay for it," the report notes.

Healthcare spending as tracked by CMS covers everything from hospital and physician care to prescription drugs and nursing home care. Spending growth declined in every major category from 2007 to 2008 except research (which increased from 1.6% to 2.6%), durable medical equipment (which increased from 3.3% to 4.1%), and government public health activities (which remained flat at 7.1%). Prescription drugs, which had seen double-digit growth in the first part of the new millennium, came in at 3.2%.

More Intense Care for Fewer Patients?

Expenditures for the category that CMS calls "physician services" rose 4.7% in 2008 compared with 5.5% in 2007. This growth rate slightly topped the overall healthcare spending growth rate of 4.4%, as well as GDP growth. Generally speaking, the physician services category of CMS applies to office-based physicians in private practice. It does not cover physicians working in clinics operated by the US Department of Veterans Affairs, the US Indian Health Service, and similar agencies.

Physicians may have seen fewer patients, but they may have rendered more complex and costly care for them in 2008, the CMS report stated. Factors for physician services aside from price, such as use (read quantity) and intensity (read complexity), grew 2% — a faster growth than in 2007. However, the use factor itself does not appear to have fueled this increase. The CMS report cited a study by the American Academy of Family Physicians reporting that more than 50% of physicians reported a decline in patient volume — an expression of use — since the recession began.

"This suggests that growth in the intensity of physician services may have accelerated in 2008," the report stated, adding that prices charged by physicians increased by 2.7%, down from 3.9% the year before.

There are 2 possible explanations for why physician services may have "intensified." One is that physicians provided more complicated treatment to patients — such as a higher-level evaluation and management service — simply to make up financially for fewer visits. The other is that patients hard hit by the recession may have delayed seeking care only to arrive at the physician's office in worse shape, necessitating more intense services.

The CMS report lends credence to the second explanation. Noting that out-of-pocket spending for personal healthcare services in 2008 grew by 2.8% compared with 6% in 2007, the report stated that "people may have reduced their spending on health care and forgone some medical treatment — particularly those who lost health insurance as a result of unemployment."

Health Affairs. Published online January 5, 2010.

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