Medicare Physician Payment
Under the Medicare program, physicians are prohibited from setting their own prices for services. Instead, physicians must accept the amount set forth in the Physician Fee Schedule developed by the Centers for Medicare and Medicaid Services (“CMS”) as full payment. Each year, the conversion factor, which is one aspect of the equation used to determine reimbursement under the Physician Fee Schedule, is updated by CMS. Flaws in the Sustainable Growth Rate (SGR) formula used to determine this update have led to an unstable payment system that can cause sudden and unpredictable drops in the conversion factor, cutting physician reimbursements for the exact same service from one year to the next. Erratic fluctuations in the conversion factor update and cuts in reimbursement are forcing an increasing number of specialty physicians to reconsider their participation in the Medicare program, limit services to Medicare beneficiaries, restrict the number of Medicare patients they will see, or retire from medicine all together.
After receiving a negative 5.4 percent update in 2002, the flaws with the formula have been so pronounced that it has taken an act of Congress to hold the system together. In 2003, after delaying the update to the Physician Fee Schedule for three months to avoid a crisis, Congress forced CMS to fix accounting mistakes that were made during the late 1990s. Fixing these errors prevented another year of cuts, but did nothing to fix the overall formula. In 2004, Congress again acted to prevent cuts in 2004 and 2005 by including provisions in the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (“Medicare Act”). A last minute “freeze” in 2006 prevented reimbursement cuts in 2007, which was followed by a 6-month temporary fix to prevent cuts in the first half of 2008. The 18-month fix Congress passed in 2008 was expected to provide the time needed to establish a permanent replacement for the SGR. Time is running out on that patch.
While the Alliance appreciates congressional action to prevent cuts, their effort has been little more than a band aid on the problem. In fact, the money used to fund updates in 2004 through 2009 must be paid back to the Medicare program, with interest, over the next ten years. In essence, Medicare has given the physician community a loan in order to pay its own bills.
Without a fix of the formula, physicians will receive negative updates for the foreseeable future. In other words, physicians will continue to receive less reimbursement than they did in 2002 for the exact same procedure, regardless of increases in cost, inflation and expenses. Such cuts will further inhibit each physician’s ability to provide services to Medicare beneficiaries as many physicians will simply be unable to afford to treat Medicare patients.
The Formula Must Be Fixed Now
Congressional action has delayed a meltdown of the Medicare program and allowed some breathing space to evaluate and fix the formula used to determine the update. The time to act to fix the formula is now! Flaws in the current formula include:
- Linking Medicare physician fees to the Gross Domestic Product, which does not accurately reflect changes in the costs and expenses of caring for Medicare beneficiaries;
- Including the costs of Medicare-covered outpatient drugs and biologicals in setting the expenditure target for physicians’ services, even though these items are not physicians’ services and therefore, under the formula, lead to decreases in the annual update;
- Inadequately accounting for changes in the volume of services provided to Medicare patients caused by new preventive screening benefits, national coverage decisions that increase the demand for services, a greater reliance upon drugs to treat illnesses, and a greater awareness of covered health benefits and practices related to educational outreach efforts; and
- Improperly accounting for the costs and savings associated with new technologies.
The Alliance is aggressively working with Congress to develop a long-term solution to these problems.
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