Global budgets and sustainable growth rate
Global budgets and sustainable growth rate
United States General Accounting Office Testimony Before the Subcommittee on Health, Committee on Energy and Commerce, House of Representatives
May 5, 2004
Medicare Physician Payments
Information on Spending Trends and Targets
Statement of A. Bruce Steinwald, Director, Health Care-Economic and Payment
Issues
Concluding Observations
To a large extent, the physician fee cuts projected by Medicare’s Trustees are required under SGR’s system (Sustainable Growth Rate system) of cumulative spending targets to make up for excess spending in earlier years. MMA (Medicare Prescription Drug, Improvement, and Modernization Act of 2003) added to the excess spending by specifying minimum fee updates for 2004 and 2005 without resetting the spending targets for those years. As a result, physician fee cuts were postponed, not avoided.
In considering the projected fee cuts, however, it is important to recall that Congress originally established Medicare spending targets for physician services in response to runaway spending in the 1980s. The recent increase in volume and intensity growth suggests that Medicare faces a fundamental physician spending growth problem even if the SGR slate of missed spending targets were somehow wiped clean. Currently, projected Medicare spending for physician services exceeds what policymakers have specified-through the parameters of the SGR system-is the appropriate amount to spend. Because of expected increases in the volume and intensity of services provided by physicians, real spending per beneficiary is projected to grow by more than 3 percent per year. SGR, designed to promote fiscal discipline, allows such spending to grow by just over 2 percent per year. If the growth in real spending per beneficiary is not lowered through other means, SGR will mechanically reduce fee updates in an attempt to impose fiscal discipline and moderate total spending increases. Although this mechanical response may be desirable from a budgetary perspective, any consequences for physicians and their patients are uncertain.
http://www.gao.gov/new.items/d04751t.pdf
Comment: A common response to escalating prices is the institution of price (fee) controls. This response is not limited to governments, as in the case of Medicare, but it is also characteristic of the private sector, as in the dictated fees of the managed care plans. In health care, in order to increase income when fees are fixed, physicians respond by increasing the volume of services (number of services provided to each patient) and by increasing the intensity of services (increasing the complexity and costliness of those services). The experience with Medicare confirms that this phenomenon is very real.
Because of escalating spending in the Medicare program, the sustainable growth rate (SGR) system was established. Total program spending for physicians was allowed to increase at a “sustainable” rate of about 2% per year. It is important for single payer supporters to understand this concept because it is somewhat analogous to the “global budgets” which would be used to limit excessive growth in health care expenditures. A more rational rate than an arbitrary 2% would be adopted, but the system would still be funded within the confines of a defined budget.
Because the volume and intensity of Medicare services have been increasing significantly, the fees (prices) per unit of service will decrease over the next several years. This has been compounded by the requirement to recapture, through lower fees, payments made in previous years that were high due to forecast estimates that proved to be erroneous. But even without these errors, physicians will perceive the lower fee schedule to represent pay cuts, even though the global payments will increase by about 2%. It can be anticipated that there will be increased physician opposition to any “government-run” program like Medicare. We should be prepared to explain to them how lower fees will not reduce their gross incomes (although overutilizers could drain funds away from physicians who are trying to provide care at more appropriate levels of utilization).
Fee-for-service incentivizes excessive services. Capitation for individual physicians incentivizes the erection of barriers to care. Salary plus incentives seems to be the least perverse mechanism of compensation, but would we be willing to convert our health care system into a national health service?