New Report's Findings on Medicare Spending Don't Tell the Whole Story

New Report's Findings on Medicare Spending Don't Tell the Whole Story

11.01.11 | By Greg Lopes

In a recent blog post in the Washington Post, Sarah Kliff highlights a new effort by the Bipartisan Policy Center to pitch their deficit reduction proposal for price controls in Medicare Part D, claiming that the projected long term costs of Medicare on prescription drugs will outpace spending on hospitals and doctors.
However, Kliff and the BPC analysis ignore that the projections for Medicare hospital and physician spending are implausibly optimistic - while the projections for long term prescription drug spending are very likely overstated, as previous projections have been.
A number of important factors cast doubt on the projected spending figures:
  • Spending projections for Part D have tended to be vastly overstated. Part D spending is 41 percent lower than initial 10-year projections, according to the Congressional Budget Office.
  • Actual experience in Part D shows that growth has been in line with Parts A and B. The latest Medicare Trustees report shows spending in each program growing around 4 percent from 2007 to 2010.
  • Projected growth in Part B assumes that there is no adjustment to Medicare payment for physicians and that major rate cuts will be implemented. This is implausible given strong bipartisan support for changes to the sustainable growth rate formula which would increase physician spending.
  • Projections for hospital spending are also optimistically low. Government actuaries have expressed concern that scheduled cuts in hospital payment could be very difficult to implement and may therefore be unrealistic.
Projecting future spending on prescription drugs is particularly difficult because some of the medicines that will be used have not yet been discovered. Experience shows that government actuaries often make very conservative assumptions, leading to estimates of rapid growth in later years that typically do not materialize. In contrast, market analysts tend to rely on data about current research and medicines in the pipeline. The most current projections from IMS Health forecast that market growth will be below 3 percent through 2015.

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