Medicare pay squeeze: AMA calls for correction of update

Physicians look to Congress to minimize impact of a 5.4% Medicare pay cut next year.

By Markian Hawryluk, amednews staff. Nov. 19, 2001.

Washington -- Hopes to avoid a 5% cut in Medicare payment for physician services are now pinned to the willingness of Congress to step in and minimize the reduction.

The Centers for Medicare & Medicaid Services announced Nov. 1 that the conversion factor used to calculate payments to physicians would decline by 5.4%. The impact on individual services, however, will vary due to changes in the relative value work units upon which payments for services are based.

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The American Medical Association has called on Congress to act immediately to delay the 2002 update until permanent changes can be made to the underlying formula on which it is based. But with its plate full of national security and economic stimulus measures, it is unclear whether Congress will be able to address the payment issue before the cut is scheduled to take effect Jan. 1, 2002.

In the current environment, even noncontroversial regulatory reform measures that carry no federal costs are not considered a sure bet for passage. Therefore, a payment update fix that presumably would cost billions may not sit high on the agenda.

Nearly 30% of family physicians are not accepting new Medicare patients.

"Without congressional action now, the Medicare program will suffer a 5.4% cut, endangering access to quality patient care for our seniors," said Timothy T. Flaherty, MD, AMA chair. "Congress must act now to keep Medicare beneficiaries from suffering the same access problems that challenge Medicaid beneficiaries."

Unlike payments for hospitals or other providers for which Medicare's annual updates allow some government discretion, physician payment is updated based on a set formula. In essence, CMS must simply input the numbers and arrive at an answer.

"It is a very prescriptive formula that recognizes the physician as the primary driver of health services," said Tom Grissom, director of CMS' Center for Medicare Management. "Therefore, the fee schedule under which physicians operate is unlike any other in that it both is predictable and self-correcting."

The self-correcting nature of the formula is primarily responsible for the impending reduction. The formula updates payments on the basis of estimated changes in physician costs. But the update only equals the estimated change if actual spending is equal to a target -- the sustainable growth rate.

The target is based on four things: gross domestic product, enrollment in the traditional Medicare program, input prices, and spending due to new laws or regulations. If actual spending misses the target, the next year's update must be raised or lowered to bring spending in line. This year, revisions to previous year estimates of GDP, increases in physician spending and the economic slowdown have all added up to a large negative update.

Physicians say part of the problem is that the pay formula is cumulative, compounding errors made in its first two years and never corrected. In 1998, when the SGR was introduced, GDP growth for both the current and upcoming year was underestimated by 2%. That has lowered the spending target by billions of dollars, increasing the magnitude of the reduction.

"Applying the actual numbers for 1998 and 1999 rather than the inaccurate CMS estimates would avert an across-the-board cut," Dr. Flaherty said. "Congress never intended for our nation's seniors to be penalized by the use of flawed estimates."

CMS said the reduction must be taken in the context of previous updates. Since the SGR formula went into effect in 1998, doctor payment has gone up 15.9% through 2001. Meanwhile, medical inflation has risen 9.3%.

"Over the long haul, that is a good system," Grissom said, but "there are parts of that overall formula, and what you could do with new data and actual expenditures versus estimates, that could be revisited."

But physician groups counter that CMS is not looking at the full picture. A cut in 2002 would be the fourth reduction of physician payment in 10 years. Moreover, Medicare payments have lagged 13% behind the growth in total medical practice costs, reflecting in part an increase in Medicare's administrative requirements.

According to the Medical Group Management Assn., costs for multispecialty group practices rose by 6.2% in 2000. The group said the update would not only fail to compensate them for their rising costs, but also penalize doctors with an extra reduction.

"Expensive federal mandates have contributed to these increases in practice costs," said William F. Jesse, MD, president and CEO of MGMA. "Physician group practices are increasingly subject to new requirements for Medicare documentation, compliance programs, patient safety, needlestick prevention, privacy protection, interpreters for patients with limited English proficiency, and more, without additional compensation."

Physicians also chafe at the formula's use of a reduction to offset productivity. Since 1992, the productivity adjustment has reduced the Medicare Economic Index, used as a measure of physician cost inflation, by 27%. As a result, physicians must see more patients just to keep revenues even.

"With the trend for declining reimbursement, groups generally are doing whatever possible to control costs and increase revenue, including working more," said Patrick David, MD, medical director at Family HealthCare Associates, in Arlington, Texas. "This may reflect what many physicians feel, which is that they are working harder and longer to maintain their compensation levels."

The rising workload, along with the growing gap between rising costs and falling reimbursement, could lead to access problems.

"Physicians have not abandoned their Medicare patients, but decreasing Medicare reimbursement and increasing Medicare regulation may make it difficult for new Medicare patients to find a physician," Dr. Flaherty said.

Nearly 30% of family physicians are not accepting new Medicare patients and the number of doctors with a Medicare billing number declined by 3.5% this year. CMS has attributed some of that decline to removing old numbers that are no longer in use. Still, this may suggest that some doctors who used to treat Medicare patients no longer do so, the AMA says.

CMS has downplayed access concerns. "Currently 87% of physicians in this country accept assignment from the Medicare program," Grissom said. "We don't know whether or not this single year negative conversion factor will affect that rate, but we do not anticipate that beneficiary access to physician services will be negatively impacted."

The Medicare Payment Advisory Committee has called for the repeal of the SGR system. But without congressional action, CMS will have no choice but to implement the reduced payment rates at year's end.

"This administration has attempted to focus on other ways to improve the Medicare program, especially for physicians," Grissom said. "We've tried to reduce paperwork burdens and operating burdens."