December 6, 2010

The suspense over whether Congress will allow the automatic 25 percent reduction in Medicare payments to physicians on January 1st increases within the larger economic context. Will the federal government find a way to put people back to work? Will taxes for those making $250,000 or more go up next year? Will the health care reform changes survive the new Congressional majority’s promises to repeal or at least withhold the funds needed for implementation? We don’t have any better answers than others, but a summary of the data will help inform the debates we are inevitably going to be having with family members and friends during the holiday festivities.

Medicare Physician Payment Cuts

First, Medicare payments will continue at their present levels through December.  A week ago, on December 29, the House of Representatives approved by voice vote the bill passed by the Senate before Thanksgiving, thus postponing a 23 percent cut in payments to physicians scheduled to take effect on December 1st. President Obama signed the bill the next day. The one-month postponement will cost $1 billion, paid for with savings from planned cuts in Medicare reimbursement for therapy services, according to the agreement made by Sens. Max Baucus (D-MT) and Charles Grassley (R-IA).

ASA, the AMA, the American College of Surgeons and other medical organizations are working hard to bring about a further delay in any cuts until the end of 2012. That would cost about $17 billion. As the Congressional action protecting current levels through December shows, Congress is serious about finding the funds within the Medicare budget itself rather than taking them from other governmental programs. The White House, however, is pushing Congress to adopt the one-year payment fix. While there is bipartisan support in the House, all Senate Republicans have committed to blocking any bill if they cannot reach agreement with the Democrats on tax cut issues.

Data Points for Your Discussions (and Slides!)

1. Number of uninsured adults (age 18 to 64), millions

   2008	2009	2010
   56.4	58.7	59.1

   Source:  CDC, MMWR, Vital Signs: Health Insurance Coverage and Health Care Utilization --- United States, 2006--2009 and January--March 2010.  November 12, 2010 / 59(44); 1448-1454

2. National Health Expenditure Data (NHE)
   

   Historical NHE, 2008:

• NHE grew 4.4% to $2.3 trillion in 2008, or $7,681 per person, and accounted for 16.2% of Gross Domestic Product (GDP).
• Medicare spending grew 8.6% to $469.2 billion in 2008, or 20 percent of total NHE.
• Medicaid spending grew 4.7% to $344.3 billion in 2008, or 15 percent of total NHE.
• Private spending grew 2.6% to $1.2 trillion in 2008, or 53 percent of total NHE.
• Hospital expenditures grew 4.5% in 2008, slower than the 5.9% in 2007.
• Physician and clinical services expenditures grew 5.0% in 2008, slower than the 5.8% in 2007.
• Prescription drug spending increased 3.2% in 2008, a deceleration from the 4.5% in 2007.
• At the aggregate level, the shares of financing for health services and supplies by businesses (23 percent), households (31 percent), other private sponsors (3 percent), and governments (42 percent) have remained relatively steady over time.

Projected NHE, 2009-2019:

• Growth in NHE is expected to increase 5.7 percent in 2009 and average 6.1 percent per year over the projection period (2009-2019).
• The health share of GDP is projected to reach 17.3 percent in 2009 and 19.3 percent by 2019.
• Medicare spending is projected to grow 8.1% in 2009 and average 6.9% per year over the projection period.
• Medicaid spending is projected to grow 9.9% in 2009 and average 7.9% per year over the projection period.
• Private spending is projected to grow 3.0% in 2009 and average 5.2% per year over the projection period.
• Spending on hospital services is projected to grow 5.9% in 2009 to $761 billion. Average growth of 6.1% per year is expected for the entire projection period.
• Spending on physician and clinical services is projected to grow 6.3% in 2009 to $528 billion. Average growth of 5.4% per year is expected for the entire projection period.
• Spending on prescription drugs is projected to grow 5.2% in 2009 to $246 billion. Average growth of 6.3% per year is expected for the entire projection period.
  

  Source:   CMS, NHE Fact Sheet  

3. Medicare Program Expenditures and Growth

• The Medicare Program is the second-largest social insurance program in the U.S., with 46.3 million beneficiaries and total expenditures of $509 billion in 2009.  This amounted to 3.5 percent of GDP.  “If Congress continues to override the statutory decreases in physician fees, and if the reduced price increases for other health services under Medicare become unworkable and do not take effect in the long range, then Medicare spending would instead represent roughly 11.0 percent of GDP in 2084. (This compares to 11.4 percent as shown in last year’s report under the prior law.)”
• Part B outlays (principally physician) were 1.5 percent of GDP in 2009 and are projected to grow to about 2.5 percent by 2084 – if Congress does not do away with the SGR cuts.  Looking at several scenarios, the Trustees estimate that “Part B costs would be 5.2 percent of GDP in 2084, and would exceed the current-law projections by 22 percent in 2019, by 40 percent for 2030, and by 112 percent in 2084.”
• Private health insurance tends to grow more rapidly than Medicare.  Premiums for employer-sponsored family health insurance increased an average of 41 percent across states from 2003 to 2009, more than three times faster than median incomes, according to a new Commonwealth Fund report, which also found that the Affordable Care Act could save as much as $3,000 in health insurance premiums per year, per family.
  
  

  Source:  2010 Annual Report of the Medicare Trustees

4. Anesthesia Proportion of Total Medicare Spending on Physician Services

   (Column B. “Total Physicians,” is a subset of “Total All Specialties.”  The percentage for “All Specialties’” is 100 %.)  

   2008	A.  Anesthesiology		B.  Total Physicians
   	Submitted	Allowed	Submitted	Allowed
   Charges x 1,000	$9,016,140	$1,794,235	$274,355,179	$113,804,294
   Percent	3.3%	1.6%	72.2%	71.9%
   Per Person Served	$1,589	$316	$6,336	$2,616

   
   

   Anesthesiology thus accounts for about 1.6 percent of Medicare Part B spending on all physician services, a figure that has been reasonably consistent for at least two decades.  That percent figure explains both why anesthesiology does not command more attention and – given the absolute total dollars involved – why it has been so difficult to raise the anesthesia conversion factor. 

   The disparity between submitted and allowed charges is twice as large (503 percent) for anesthesiology as it is for total physician services (242 percent).  Looking at the data for other specialties in the full table from which the above values were taken will help in understanding the apparent anomaly.

   Source:  CMS, Medicare & Medicaid Statistical Supplement, 2009 Edition:  Table 9.5, Persons Served, Services, Submitted and Allowed Charges, Program Payments, and Balance Billing for Medicare Physician and Supplier Services, by Physician Specialty: Calendar Year 2008

5. Anesthesiologist Compensation, 2010

• Average annual anesthesiologist salary:  $362,450.
• The average annual salary decreased by roughly $20,000 for anesthesiologists with 10 or fewer years of experience, while it increased by $27,000 for anesthesiologists with more than 10 years of experience.
  

  Source:  Locum Tenens.com, Compensation & Employment Report

6. Proposals to Rein in Health Care Costs

   This Alert does not address the causes or amounts of likely further growth in health care spending.  (Thomson Reuters’ White Paper “A Path to Eliminating $3.6 Trillion in Wasteful Healthcare Spending” is one good source of information on that topic.)  At the moment it is more interesting to consider some of the health care savings proposals from President Obama’s deficit commission.  These, according to the Associated Press, make “cost curbs in the new overhaul law [ACA] look tame by comparison.”

• Phase out the federal tax-free treatment of job-based health insurance
• Increase Medicare cost-sharing by beneficiaries, subject to a $7,500 stop-loss ceiling.
• Limit the coverage provided by Medigap plans so as to create cost barriers to overutilization
• Set and enforce an overall budget for Medicare, Medicaid and other federal health benefit programs
• Repeal new long-term care insurance program created by the ACA
• Extend the power of the ACA’s Independent Physician Advisory Board to limit spending
• Create specialized courts to try medical malpractice cases, and set a series of limits on jury awards
  

  Source: AHIP, Hi-Wire, December 2, 2010

All of the data provided above is just a smattering of the credible health policy materials available on the Internet. We hope that it is enough to answer some of the questions that our readers will have. Please let us know whether this type of review is useful to you.

With best wishes,

Tony Mira
President and CEO