Medicare doctor payment fix remains elusive for Congress

A congressional hearing sets the stage for the long process of fixing the formula or creating a new one.

By Markian Hawryluk, AMNews staff. May 24/31, 2004.

Washington -- Congress has started shopping for a replacement for the Medicare physician payment formula but is finding that alternatives might be too expensive for its taste.

At a recent hearing of the House Energy and Commerce health subcommittee, lawmakers heard widespread agreement that the current physician payment formula is ineffective at setting appropriate rates or controlling utilization -- the two things it was designed to do. But solutions come with multibillion-dollar price tags.

"I know doctors in Florida who are really being squeezed right now as they contend with declining reimbursement from Medicare at the same time they're facing skyrocketing medical malpractice insurance premiums," subcommittee Chair Michael Bilirakis (R, Fla.) said. "Access problems will become a real issue, and I'm afraid we will face a physician supply problem for years if we allow prolonged cuts in payments."

Congress stepped in last year with a temporary fix to set updates for 2004 and 2005 at no less than 1.5%. But that move, combined with previous action to avoid a cut in 2002, has set the stage for major pay reductions from 2006 through 2012. Under the sustainable growth rate formula, a target is set for physician spending each year. If spending exceeds the cap, those funds must be recouped in future years.

According to Congressional Budget Office Director Douglas Holtz-Eakin, the 2004 and 2005 floor on updates is likely to boost spending by about $4 billion each year. That $8 billion, on top of $5 billion in additional spending from previous years, means future updates will have to recoup $13 billion in spending. As a result, physicians will face the maximum reduction possible, about 5%, in at least 2006 and 2007. Medicare trustees recently estimated that physicians will see the largest allowable cuts through 2012.