COVID-19 Associated with $13.9B Decline in Medicare Spending

According to a new American Medical Association (AMA) report, utilization of physician services in 2020 declined due to the COVID-19 pandemic, creating a less than expected decline of $13.9 billion in Medicare spending. The drop was equal to a 14 percent decline in Medicare claims.

The report showed that despite a mid-year bounce back during May and June, Medicare spending on physician services never returned to its pre-pandemic levels. 

Additionally, the AMA attributes the unexpected decline in Medicare spending to individuals delaying or omitting healthcare services during the COVID-19 pandemic.

“Physicians experienced a significant and sustained drop in Medicare revenue during the first 10 months of the pandemic,” AMA President Gerald E. Harmon, M.D. said in a press release. 

The AMA report found that when analyzing Medicare spending on physician services, all services faced a financial decline. Several variables substantially impacted the spending decline, including service type, setting or specialty, and state or region.   

In particular, evaluation and management (E/M) spending dropped 50 percent lower than expected by late March of 2020. In addition, services including imaging, procedures, and tests faced a constant decline until mid-April, when spending dropped upwards of 65 percent to 70 percent below the expected for 2020 spending. 

The analysis showed that spending recovered from April lows, and during the second half of 2020, effects were alike between all four major types of service.  

“Telehealth spending increased dramatically in 2020 but use was concentrated in a handful of service categories,” the AMA report added.

The location of service impacted Medicare spending on physician services, especially during the early months of the pandemic. For example, skilled nursing facilities faced a 26 percent decline in April, and ambulatory surgical centers faced a 90 percent drop in Medicare spending.

In addition, inpatient hospitals and emergency rooms experienced a 40 percent drop in Medicare spending below expected.

Spending rebounded in the second half of 2020 but still was 4 percent to 15 percent below for all major settings. 

Meanwhile, primary care facilities had a faintly better average, with cumulative spending for internal medicine only down 10 percent and family medicine down only 12 percent.

Idaho, Oklahoma, and South Carolina faced a 9 percent decline in Medicare spending. However, Minnesota experienced a 22 percent decline in Medicare spending. 

In general, the Northeast and Upper Midwest experienced the most significant reductions in cumulative spending. In addition, states in the South and Mountain region such as Idaho, Nevada, and Utah experienced below-average drops in spending.

The report also analyzed Medicare spending on telehealth services. 

Before the pandemic, telehealth services accounted for one percent of the Medicare Physician Fee Schedule (MPFS) spending. In 2020, Telehealth accounted for 5 percent of MPFS spending.

Mental health services had the most significant share of telehealth spending, including clinical social workers accounting for 50 percent, clinical psychologists with 38 percent, and psychiatrists with 31 percent. 

“Medical practices that have not buckled under financial strain continue to be stretched clinically, emotionally, and fiscally as the pandemic persists.” President Harmon stated in the press release.

“As struggling physician practices face a difficult and precarious road to recovery, now is the time for financial stability in Medicare and the AMA is strongly urging Congress to avert the planned payment cuts.”