Sluggish Recovery to Dampen Spending on Physician Services

June 13, 2012

June 13, 2012 — The sluggish recovery from the recent recession will hold back national spending on healthcare — including physician services — through 2014 more than economic forecasters from the Centers for Medicare and Medicaid Services (CMS) projected last year, according to a study of theirs published online June 12 in Health Affairs.

In their annual projection, economists and actuaries with the CMS Office of the Actuary state that after growing 3.9% in 2011, private and government healthcare expenditures will increase by 4.2% in 2012 and 3.8% in 2013. Then they will surge upward by 7.4% in 2014 when the Affordable Care Act (ACA) — now at the mercy of the US Supreme Court — begins to extend insurance coverage to some 30 million more Americans through 2019.

However, these annual growth rates are somewhat lower than what CMS officials predicted in last year's projection, also published in Health Affairs. At that time, they estimated that healthcare spending would grow by 4.8% in 2011, 4.3% in 2012, 5.5% in 2012, and 8.3% in the ACA's big year of 2014.

The same downscaling applies to expenditures on physician and clinical services. Last year, CMS estimated that they would grow by 8.9% in 2014. This year, the agency is forecasting only 8.5%.

In a press briefing yesterday, CMS senior economist and lead author Sean Keehan attributed the lower growth rates to a less rosy view of the recovery from the recession of 2007-2009.

"Our macroeconomic projections of gross domestic product, disposable personal income, and unemployment rate are slightly worse now than when we projected last year for 2012, 2013, and 2014," said Keehan.

His group's latest study in Health Affairs states that spending on physician and clinical services will grow slowly in the buildup to 2014, a pace that "reflects the enduring impact of the economic downturn, including continuing declines in patient visits to physicians, for people with and without insurance."

The forecast for this spending line includes a growth rate of 0.9% in 2013, a year in which Medicare is scheduled to slash physician reimbursement by 30.9% in accordance with its sustainable growth rate (SGR) formula. That same year, all Medicare providers are supposed to take another 2% pay cut as mandated by the Budget Control Act of 2011.

As it has done in the past, Congress probably will act to stabilize Medicare rates and avert a collapse of the program. Not surprisingly, Keehan and coauthors created an alternative Medicare projection in which physicians receive a 1% Medicare raise in 2013. In that scenario, overall spending on physician and clinical services would rise by 4.4% as opposed to 0.9%.

Demise of ACA Might Not Alter Cost Curve Much

Another big "if" in the projection is the fate of the ACA. The Supreme Court is expected to rule this month whether the law's individual mandate and dramatic expansion of Medicaid are constitutional or not. The high court could strike down the law in part or in whole, or uphold it in its entirety.

At first glance, Keehan and coauthors appear to suggest that healthcare inflation will essentially remain the same by 2021, the end of their projection period, no matter how the court rules on the ACA. They write that while the law will dampen the growth of healthcare spending in some ways, it will boost it in others. Two other big factors make up their economic Rubik's cube — an expected upswing in the economy and the nation's aging population. Taken together, these 3 factors explain a projected 6.2% increase in healthcare spending in 2021, about 2 percentage points faster than overall economic growth and "the same differential experienced over the past 30 years."

The authors also project a growth rate of roughly 6.2% in 2021 if Congress had never enacted the ACA. CMS economist Gigi Cuckler said during 'yesterday's press briefing that although the ACA might outperform the pre-ACA status quo for a few years in terms of slower spending growth, demographic changes such as Baby Boomers migrating from private insurance to Medicare will cause "a return to trend."

However, Cuckler cautioned against adopting the non-ACA projection as an alternative forecast if the Supreme Court overturns all or part of the ACA. The ACA, she said, has changed the trajectory of spending.

"Some aspects of the law have already taken effect in the past couple of years," she said. "I would just advise caution in extrapolating too much."

Health Aff. Published online June 12, 2012. Full text


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