Short-Term Fixes to the Sustainable Growth Rate Process . 2.1.2 Decomposing Spending Growth

10/30/2006

Some of the changes in spending displayed in Figure 1 are due to changes in price and changes in the number of Medicare beneficiaries over time.  Year-to-year changes in total spending were decomposed into changes attributable to price, the number of traditional fee-for-service Part B program beneficiaries, and intensity – changes in utilization of services or procedures that were not attributable to program size or price.  Data suggest that intensity varies over time, and by service type.  Intensity estimates for E&M during the 2000-2004 period averaged about 3.7 percent per year, less than the intensity value for all SGR services combined, 5.5 percent.  By contrast, imaging procedure intensity averaged 11.2 percent per year (Table 2).

Real growth in utilization has been away from major procedures, toward minor and ambulatory procedures.  Intensity of major procedures (including major surgical procedures that require over-night hospitalization) declined slightly during 2002-2004 by about one-half of 1 percent per year on average.  Intensity for all other procedures (including minor procedures, endoscopies, and eye procedures) increased an average of 7.1 percent per year.  In 1996, spending on major procedures accounted for about 37 percent of spending on all procedures.  By 2004, the major procedure share had declined to 26 percent.  Intensity for other (non-major) procedures during 2000-2004 exceeded intensity for SGR services by about 29 percent.

Table 2. Intensity and Percent Shares of Allowed Charges, 1996-2004
 

 

Intensity

  Percent Share of
Allowed Charges

Average Annual
Percent Change

Service Group

1996-97

2003-04

 1996-2000

 2000-04

All Services

100.0

100.0

3.5

6.5

 

 

 

 

 

E&M

42.7

40.5

5.7

3.7

  Office Visits

16.9

16.7

7.2

4.5

  Hospital Visits

12.5

9.5

2.2

1.6

  ER Visits

2.7

2.3

4.2

3.4

  Home & Nursing Home Visits

2.3

1.9

3.2

3.5

  Specialty Visits

2.7

5.1

12.9

5.3

  Consultations

5.6

5.0

4.5

4.2

 

 

 

 

 

Non-E&M

57.3

59.5

2.1

8.6

Major Procedures

11.2

6.8

-3.7

-0.4

Other Procedures

19.6

17.9

1.7

7.1

Imaging

10.1

14.1

8.7

11.2

Chemotherapy and Other Drugs

4.6

10.4

20.0

18.0

Lab Tests

6.6

6.0

1.4

6.5

Other

5.1

4.3

17.1

9.8

Note: E&M  refers to evaluation and management services.  Intensity is calculated as percent change in spending after controlling for changes in price and number of fee-for-service beneficiaries.

Source: NORC analysis of Physician/Supplier Procedure Summary MasterFile data, 1996-2004.

During the period from 1996-2004, growth in utilization was rapid for the chemotherapy and other drugs category of services.  Rapid increases in the utilization of imaging procedures are observed during this period, as well.  Utilization of both standard and advanced procedures exceeded increases for the average service during 1996-2000 and 2000-2004 (Table 3).

Service Group Percent Share of Allowed Charges 1996-97 Percent Share of Allowed Charges 2003-04 Intensity: Average Annual Percent Change  1996-2000 Intensity: Average Annual Percent Change  2000-04
Table 3. Intensity and Share of Total Spending, Selected Services and Procedures, 1996-2004
All Procedures 30.8 24.7 -0.2 4.9
  Major, Cardiovascular  Procedures 4.6 2.9 -0.2 -3
  Major, Orthopedic  Procedures 2.9 1.8 -3.8 1.8
Ambulatory  Procedures 3.2 3.2 4.4 4.5
Oncology Procedures 1.9 2.3 4.4 14.8
All Imaging 10.1 14.1 8.7 11.2
Standard Imaging 4.5 5.2 3.9 10.8
Echograhy, other than heart imaging 1.2 1.5 12.6 7.1
Advanced, MRI imaging 1.3 2.5 14.6 16.4
Chemotherapy and Other Drugs 4.6 10.4 20 18

Note: Intensity is calculated as percent change in spending after controlling for changes in price and number of fee-for-service beneficiaries.

Source: NORC analysis of Physician/Supplier Procedure Summary MasterFile data, 1996-2004.

The shift away from utilization of major procedures is also revealed from the perspective of where services are obtained.  About 62 percent of charges were for services provided in office settings in 2004, whereas services provided to inpatients accounted for about 20 percent of Part B allowed charges by physicians (Table 4).  The share of charges for services provided to inpatients declined by about a third between 1996 and 2004.  The shift of services to the office setting is not strictly due to increases in the provisions of E&M services.  In 2004, the ratio of allowed charges for E&M services provided in non-inpatient to inpatient settings was 2.6 – for every dollar of E&M care provided in an inpatient setting, $2.60 of E&M care was provided in other settings (Table 5).  But the ratio for non-E&M care was even larger.  Over four times as many allowed charges under Part B were for non-E&M services and procedures, less spending for drugs and lab, provided in non-inpatient settings than in in-patient settings.

Table 4. Allowed Charges by Site of Service, 1996-2004
  1996 2000 2004
Total Allowed
Charges (billions)

44.5

54.0

81.8

 

Percent Distribution

Office

47.3

55.0

62.3

Outpatient
Department or
Emergency Room

14.2

12.9

11.1

Inpatient

30.3

25.3

19.8

Other

8.3

6.9

6.8

Source: NORC analysis of Physician/Supplier Procedure Summary MasterFile data, 1996, 2000, 2004.

The rapid growth in spending for chemotherapy and other drugs is cited as a reason for revising the SGR process used to update Medicare physician payments over time.3  One rationale is that physicians have less control over drug spending than over spending on services and procedures provided in their offices.  A similar argument might be used for services and procedures provided by allied health personnel.  If spending on services provided by the latter is rapidly increasing, an argument for removing this spending from the SGR process is that the physician update should not reflect this trend.  In 2000, spending for services provided by allied health practitioners totaled $3.2 billion, less than 6 percent of total spending (Table 6).  By 2004, spending for allied health services had grown to $5.9 billion, over 7 percent of total spending.  Spending has grown relatively more rapidly, however, for services provided by nurses and physician assistants, professionals who are often under the direct employ of physicians.

Table 5. Ratio of Non-Inpatient to Inpatient Allowed Charges, by Type of Service, 1996-2004
 

1996

2000

2004

All Services

5.5

7.8

11.0

E&M

1.8

2.2

2.6

Non-E&M
less drugs, lab

1.9

2.8

4.2

Lab Tests

12.5

15.4

18.9

Note: refers to evaluation and management services.

Source: NORC analysis of Physician/Supplier Procedure Summary MasterFile data, 1996, 2000, 2004.

 

Table 6. Allowed Charges and Intensity for Services Provided by Allied Health Professionals, 2000-2004

 

Spending

Average Annual Intensity,
2000-2004 (percent)

Specialty

2000
(billions)

Share
(Percent)

2004
(billions)

Share
(Percent)

Non-Allied Health Specialties

50.88

94.2

75.86

92.8

6.1

All Allied Health

3.16

5.8

5.90

7.2

12.3

Nurses/Physician Assistants

0.29

0.5

0.95

1.2

29.2

Other Allied Health Professionals

2.86

5.3

4.95

6.0

10.2

All Providers

54.04

100.0

81.77

100.0

9.2

Note: Intensity is calculated as percent change in spending after controlling for changes in price and number of fee-for-service beneficiaries.

Source: NORC analysis of Physician/Supplier Procedure Summary MasterFile data, 2000-2004.

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