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 formula
used to determine this update have led to an unstable payment system
that can cause sudden and unpredictable drops in the conversion
factor, leaving physicians receiving less payment 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 in the past two years 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”).
But, again, this action did nothing to fix the formula and is representative
to duct taping the problem. In fact, while the provisions in the
Medicare Act stopped additional cuts in 2004 and 2005, the money
used to fund the increase in the update 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 in 2006, 2007, 2008 and 2009 and rates will not
return to their 2002 level until well after 2013. In other words,
physicians will receive less reimbursement in 2013 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.
Links
Fact Sheets
- Understanding the Issue…Medicare Physician Payment (to
be developed)
- Understanding the Issue…Definitions (to be developed)
Alliance Statements,
Positions, Advertisements and Materials
Resources, Surveys
and Reports
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