Medicare reform helps doctors and patients

The physician payment increase will help prevent access problems for patients, but a permanent repair of the reimbursement formula is essential.

Posted Jan. 12, 2004.

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Physicians will have a much happier new year thanks to the Medicare reform legislation signed into law last month. Instead of a 4.5% Medicare payment cut, doctors will get at least a 1.5% increase this year and next.

Not only that, but many physicians in rural and underserved areas will be eligible for 5% Medicare bonus payments. Lawmakers also took a step toward making payments in rural areas more equitable by eliminating for three years cuts that result from geographic adjustments to a portion of the payment formula.

The action by Congress and President Bush, supported by the American Medical Association, strengthens Medicare for physicians and the patients they serve. The new law prevents what would have been a "Medicare meltdown."

Had the cuts gone into effect, access for elderly and disabled patients to physician care surely would have suffered. Many doctors, faced with grim economic realities, would have been forced to trim services to seniors, to stop accepting new Medicare patients or to drop out of the program altogether. Physicians also would have faced a payment hit from private insurers, many of which base reimbursement on Medicare rates.

By reversing the scheduled cuts, Congress has preserved beneficiaries' access to physicians.

Millions of seniors and the doctors who care for them also will benefit greatly from the new law's outpatient prescription drug provisions.

While seniors wait for the new drug benefit to begin in 2006, they will get assistance this year in the form of drug discount cards, which lawmakers hope will knock up to 25% off drug prices. The much-needed help with drug costs will mean that more beneficiaries have the ability to buy the drugs their physicians prescribe.

Despite the good news, work still needs to be done.

The physician payment formula responsible for the now-averted cuts is still largely intact. The law makes some changes to the system in an attempt to prevent the seesaw increases and decreases that marked physician payment updates during the past several years. But those changes don't go far enough.

If Congress doesn't repair the flawed formula in the next two years, physicians will face steep payment reductions in 2006.

The root of the problem is the sustainable growth rate. The rate is actually a spending target, computed using a complex formula. If overall physician spending misses the target in any given year, payment is adjusted upward or downward in following years to compensate. The formula's goal is for physician payment updates to reflect the change in the gross domestic product.

Not surprisingly, the estimates on which the rate depends are often wrong, leaving physicians vulnerable to sharp payment hits. In addition, the formula doesn't account for factors that increase physician spending but are beyond their control, such as technological innovation and government coverage decisions that increase demand for services.

Punishing physicians for changes that benefit patients is unfair. And tying physician payment to the gross domestic product also makes no sense. As AMA President Donald J. Palmisano, MD, said recently, "The medical needs of our Medicare patients do not wane when the economy slows."

The AMA and other physician groups are pushing for a common-sense solution to the problem -- replacement of the broken growth rate formula with a system that takes into consideration physicians' actual costs. This idea is not new. Other practitioners and facilities participating in Medicare, such as hospitals, are paid this way.

The concept has a powerful promoter in the Medicare Payment Advisory Commission, which makes recommendations on Medicare policy to Congress. The panel supports dropping the growth rate and basing physician payment updates on changes in their practice costs for the coming year.

With the new Medicare law, Congress has given physicians a two-year reprieve from harmful payment cuts. Lawmakers should use that time wisely and take a good, hard look at the flaws in Medicare physician reimbursement and pass legislation replacing the broken system. Only then will physicians and the Medicare patients who rely on them be safe from a future Medicare meltdown.

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