Medicare Fee-For-Service Growth Has Slowed
Tuesday, September 17, 2013
by: Policy Team

Section: Public Policy and Advocacy

 A working paper of the Congressional Budget Office, “WhyHas Growth in Spending for Fee-for-Service Medicare Slowed?” reports that growth in spending per beneficiary in the fee-for-service portion of Medicare has slowed substantially in recent years.  Between fiscal years 1980 and 2005, spending per beneficiary in the fee-for-service (FFS) portion of Medicare grew at an annual rate of about 8 percent, while between fiscal years 2007 and 2012, that rate was 3 percent.

According to CBO, the slowdown has been widespread, extending across all of the major service categories, groups of beneficiaries that receive very different amounts of medical care, and all major regions.   Available evidence showed that demand for health care by Medicare beneficiaries was not measurably diminished by the financial turmoil and recession. Instead, much of the slowdown in spending growth appears to have been caused by other factors and by changes in providers’ behavior.

The slowdown in spending growth occurred among both low-cost and high-cost beneficiaries. It was most dramatic for elderly FFS beneficiaries with no or relatively low Medicare expenditures, but the reduction in growth for the one-fifth of beneficiaries with the highest Medicare expenditures accounted for most of the slowdown. (Spending on those beneficiaries accounted for more than 80 percent of spending in 2010.) In addition, the slowdown was pervasive across states with different levels of spending per beneficiary and in both rural and urban counties.

Comparing growth in per-beneficiary spending between 2000 and 2005 with the slower growth between 2007 and 2010, CBO found the following:
• Annual growth in spending for every major service category was slower in the later period, though the declines in growth rates varied among services.
• Growth in hospital inpatient spending, which accounted for the largest share of the program’s spending, fell from an average annual rate of 4.3 percent between 2000 and 2005 to 1.7 percent between 2007 and 2010.
• The decline in the growth rate was especially pronounced for spending on hospice services, durable medical equipment, and drugs covered under Part B. Altogether, growth in spending for those items and services declined from an annual rate of 13.6 percent between 2000 and 2005 to 2.3 percent between 2007 and 2010. However, those categories accounted for less than a tenth of Medicare spending in 2010.
• Overall, the reduction in the growth of spending for the three largest service categories (hospital inpatient care, physicians’ services, and hospital outpatient care) accounted for the majority of the slowdown.

CBO notes that over the decade, providers may have shifted toward methods of delivering care that resulted in slower growth in the volume, intensity, and cost of the care delivered.  For instance, providers increasingly treated high-cost beneficiaries in lower-cost sites of care. Improvements in care management could have reduced spending growth.
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