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From Health Law Daily, August 26, 2013

CBO working paper looks at factors contributing to the slowing of Medicare fee-for-service spending growth

By Kelly J. Rooney, JD

The growth in Medicare fee-for-service (FFS) spending for elderly beneficiaries slowed between 2007 and 2010, according to a Congressional Budget Office (CBO) working paper released in August 2013 entitled “Why Has Growth In Spending for Fee-for-Service Medicare Slowed?” The most recently available survey data covers through year 2010. The growth in spending between 2000 and 2005 was 7.1 percent, and fell to 3.8 percent during 2007 and 2010. Spending growth decreased even further in 2011 and 2012, which seemed to indicate that the slowdown persisted after the study period, and overall, the understanding of what caused the slowdown and how long it will last is incomplete.

Between those two time frames, 2000 to 2005 and 2007 to 2010: (1) there was also a slower growth in every other major service category; (2) growth in hospital spending fell from 4.3 to 1.7 percent; (3) the largest decrease was seen in hospice, durable medical equipment, and Part B drugs; and (4) most of the slowdown came from the largest service categories being hospital inpatient care, physicians’ services, and hospital outpatient care.

Reasons. The reason for the slowdown in spending was not as easily identifiable as previous drops based on such things as the passage of the prospective payment systems and legislation, but is at least in part due to inflation reductions. However, even when adjusted for inflation, spending growth slowed. Increases in payment rates may account for a small amount of the slowdown, along with changes in the demand for services among elderly FFS beneficiaries. The latter includes demographic changes such as age and health status, and enrollment changes, more people enrolling in Part A only and having supplemental coverage.

There did not seem to be any relationship between financial and economic woes and the utilization of health care. Changes in the delivery of care, such as utilizing lower-cost sites of care and slower adoption of cost-increasing technologies, and less incentives for providers to treat beneficiaries and the increasing use of managed care may have further reduced growth.

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