Drivers of healthcare expenditures associated with physician services.

Objective: To identify and rank the key contributors to increases in healthcare costs for physician services.

Study Design: We performed regression analysis using state-level physician cost data from the state health expenditure accounts maintained by the Centers for Medicare and Medicaid Services (CMS) and a national, private (commercial) health insurer.

Results: We estimated that during 1990 to 2000, nominal physician expenditures per capita grew 4.7% annually. Forty-two percent of this growth was attributable to general price inflation measured by the gross domestic product price deflator. The category of general economic variables and demographics was the next largest contributor to growth at 17%, followed by physician supply and provider structure (12%) and technology and treatment patterns (11%). Operating costs, health status, healthcare regulation, and health insurance benefit and product design comprised the remaining 18% of the growth.

Conclusions: Because physicians are central to the healthcare system in the United States, efforts to contain physician spending reverberate through all healthcare services. The combined effect of an increase in the number and proportion of specialty care physicians, the continued development of clinical approaches for the control of chronic disease, and an aging population requiring intensive medical care imply that the current increase in healthcare expenditures could continue unabated, unless effective cost-control devices are deployed. To be effective, emerging strategies for influencing the affordability of healthcare services are likely to require a greater level of partnership between payers, providers, and other stakeholders.