Panel predicts Medicare pay cuts as crunch looms for 2006

Medicare insolvency warnings could hinder a physician payment formula fix.

By Markian Hawryluk, AMNews staff. April 12, 2004.

Washington -- While the news about the pending bankruptcy of Medicare's Part A hospital trust fund was bad, the outlook for physicians is even worse.

The Medicare trustees report issued in mid-March predicted that the Part A trust fund would go broke in 2019, seven years earlier than expected. But estimates in the report signaled an impending crisis in Part B physician payments less than two years away.

The Medicare Modernization Act of 2003 eliminated cuts in physician payment for 2004 and 2005 but only pushed the problem out to future years, said Richard Foster, the Centers for Medicare & Medicaid Services' chief actuary.

"It did not do anything to reset the target for allowable spending under the sustainable growth rate system," Foster said. "The fact that the actual expenditures were already over the target and will now be even that much more over the target means that we have to reduce payment updates in future years to get them back to the target on a cumulative basis."

As a result, Foster and the other Medicare trustees are forecasting cuts of about 5% for 2006 through 2012.

"That's seven years' worth of minus 5% updates," he said. "It can't possibly happen, but that's current law. As a result, our Part B expenditure projections in the report are probably unrealistically low because current law can't continue this way."

The trustees report said multiple years of physician pay cuts are unlikely to occur before Congress intervenes and raises rates, and thus Medicare spending. But even without those potential increases, the growth rate for both Medicare Part A and Part B spending is alarming.