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Health Care Costs and Financing

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Volume and intensity of physicians' services used by FFS Medicare enrollees jumped over 30 percent in the mid-1990s

Increases in the per-beneficiary costs of providing physician services to the Medicare population are driven by changes in medical technology, provider productivity, and the health of Medicare beneficiaries. During the mid-1990s, per capita volume and intensity of physicians' services used by fee-for-service (FFS) Medicare enrollees jumped more than 30 percent, according to a study supported by the Agency for Healthcare Research and Quality (T32 HS00046 and contract 290-97-0001).

At most, half of this increase was due to the aging of the population, changes in the sites where care was delivered, the prevalence of health conditions, or the shift to Medicare managed care by healthier enrollees. The main driver of growth in the volume and intensity of physician services was simply an increase in the use of outpatient care, concludes Melinda J. Beeuwkes Buntin, Ph.D., of RAND.

Dr. Buntin and her colleagues linked data from the 1993 and 1998 Medicare Current Beneficiary Survey (MCBS) Cost and Use Files with claims data for MCBS FFS beneficiaries. They calculated changes in the volume and intensity of services (measured as number of relative value units [RVUs] that is, physician time and resources used) delivered due to each of these factors: changes in the composition of the Medicare population; changes in sites of care delivery; and increased enrollment in Medicare managed care plans.

In 1993, 88.7 percent of the sample used some physician services compared with 89.9 percent in 1998. Also, those who used physician services used more services on average in 1998 than in 1993. Growth in outpatient care was the main driver. The proportion of RVUs associated with inpatient care decreased from 36.7 percent of total RVU use in 1993 to 29.9 percent in 1998. In contrast, there was a mean increase of more than 10 RVUs for care delivered in outpatient settings. The growth in use of physicians' services was surprisingly uniform across medical conditions. This suggests that technological advances in diagnosis and treatment of particular illnesses only partly explained the rising costs. Growing Medicare managed care enrollment over the period explained at most a 5.6 percent increase in expenditures.

For more information, see "Increased Medicare expenditures for physicians' services: What are the causes?" by Dr. Buntin, Jose J. Escarce, M.D., Ph.D., Dana Goldman, Ph.D., and others, in the Spring 2004 Inquiry 41, pp. 83-94.

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