Doctors seek long-term Medicare pay formula fixes

Physicians question accounting for drugs, liability premiums and coverage decisions.

By Markian Hawryluk, amednews staff. March 17, 2003.

Washington -- With the immediate Medicare payment crisis averted, physician groups are advocating changes to the physician payment update formula in hopes of avoiding such drastic cuts in the future.

One portion of the formula that doctors say needs repair is the congressionally mandated method for determining the sustainable growth rate -- a spending target for physician services. If physician spending exceeds the target rate, reimbursement in the next year is cut. That has happened in the last two years, necessitating congressional action this year to prevent the second consecutive payment cut.

See related content

The SGR takes into account four factors: gross domestic product growth, changes in Medicare fee-for-service enrollment, increases in fees for physician services and changes in physician spending due to law.

In general, physicians want the update to be delinked from the GDP, but they also propose other modifications.

Chief among their complaints is the Centers for Medicare & Medicaid Services' decision to include spending on outpatient prescription drugs covered by Medicare in the SGR. Because doctors are not reimbursed for these drugs under the fee schedule, they shouldn't be part of the formula, said Tom Weida, MD, an American Academy of Family Physicians board member.

"The exponential rate of growth in these drugs ... has the effect of suppressing the payment rate for physician services," Dr. Weida said. Including them in the formula constrains physician payments but does not rein in drug spending, he said.

40 new drugs accounted for 6.6% of physician spending in 2000, up from 3.7% in 1996.

The rise in drug spending has been spurred mostly by the addition of 40 new drugs in recent years. These drugs accounted for 6.6% of physician spending as defined by CMS in 2000, up from 3.7% in 1996. According to AMA Trustee Duane M. Cady, MD, the Bush administration is pushing the adoption of new and innovative drugs, but at the same time penalizing physicians for prescribing them.

"To continue including drugs in the SGR ... in effect punishes physicians with lower payments if they provide the very new drugs and therapies that the strategic plan wants manufacturers to produce," Dr. Cady said.

The SGR also does not provide an incentive for individual physicians to control drug utilization, Dr. Cady said. Because the SGR is based on the collective actions of all physicians who bill Medicare, adjustments do little to influence the individual physician's prescribing behavior.

CMS Administrator Tom Scully has said the drugs are included in physician spending totals because doctors control their utilization, but he said the administration was willing to discuss removing the drugs from the targets and update formula.

Other woes

But the SGR is not physicians' only beef with the payment formula. Other parts of the formula factor in changes in costs for physician services as measured by the Medicare Economic Index and expected changes in physician productivity due to payment modifications.

Physicians have taken issue with the productivity adjustment. CMS assumes that physicians can increase the volume and intensity of their services to recover up to 30% of any payment decrease. But doctors argue that they cannot continually boost the volume and intensity of services and that studies showing the potential for offsetting payment cuts did not foresee that doctors would limit Medicare practices rather than boost volume.

The sustainable growth rate is based on the collective actions of all physicians who bill Medicare.

The recent Medicare cuts also have been exacerbated by the swell in medical liability premiums. While CMS made an adjustment in the Medicare Economic Index to help defray the premium increases, physicians say further changes are needed, particularly for the hardest-hit specialties.

The liability premium component of the fee schedule is based on 1996 data and should be updated, said Albert Strunk, MD, vice president of fellowship services for the American College of Obstetricians and Gynecologists.

While Medicare law requires CMS to account for the impact of new regulations that might increase spending, the agency has differed with doctors over national coverage decisions. Physician groups argue that these decisions increase spending by making new services available nationwide. But CMS counters that services approved under national coverage decisions likely are already covered by individual carriers and will not substantially boost spending.