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CBO Examines Medicare Physician Payments

By Mary Agnes Carey, CQ HealthBeat Associate Editor

June 8, 2007 -- Much of the spending growth in Medicare physician services is due to an increase in the volume and intensity of physicians' services rather than the result of changes in Medicare's payment rates, a Congressional Budget Office (CBO) analysis concludes.

The background paper, released Friday, found that while updates to Medicare's payment rates have fluctuated since the sustainable growth rate payment system for physicians was established in 1997 and implemented in 1998, spending for physicians' services under the fee scheduled has increased steadily, rising by 79.2 percent between 1997 and 2005.

Even after adjusting for changes in the cost of providing physicians' services—as measured by the Medicare economic index—and for growth in the number of beneficiaries enrolled in the program, spending on physicians' services has increased by 34.5 percent, the CBO found.

Unless Congress acts to stop it, Medicare payments to physicians will be reduced by about 10 percent in 2008 and by about 5 percent annually over the following several years. The American Medical Association (AMA) is fighting hard to stop the scheduled cuts, saying they could hurt seniors' access to physician care. The AMA is urging lawmakers to reduce payments to Medicare Advantage, Medicare's private insurance plans, as a way to finance a Medicare physician payment increase

"We are pleased that the report points out that more than half of the increase in Medicare spending on physician services between 1997 and 2005 stems from coverage expansions and changes in the beneficiary population and that nearly all of the remainder is due to factors such as prevalence of disease and medical innovation. The report illustrates the complex factors that drive demand for physician services, and shows that blunt instruments like the SGR will only exacerbate the problem," said Cecil B. Wilson, AMA board chair.

The CBO paper states that of the 39.4 percent increase in the quantity of physicians' services observed between 1997 and 2005, most of the increase "is attributable to the underlying trend in the quantity of services rather than the result of behavioral responses to changes in payment rates." Specifically, behavioral responses of physicians or beneficiaries to changes in Medicare payment rates account for only 1.4 percentage points of the 39.4 percent increase over those years. The underlying trend increase, which captures continuing changes in medical practice over time, accounts for 38.8 percentage points of the quantity increase, according to the CBO.

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