Congress to look at Medicare pay formula

Washington -- Physicians pushing for Medicare payment reform are hoping that Congress makes good on its intentions.

As lawmakers worked to finalize legislation laying out a fiscal year 2005 budget blueprint, the Senate Budget Committee attached a provision expressing the Senate's intent for Congress and the administration to correct "major flaws" in the formula used to determine Medicare payments for physician services. At press time, the Senate had not yet voted on the budget measure.

"While recent actions by Congress have helped address immediate reductions in reimbursement, further action by Congress is urgently needed to put in place a new formula or mechanism for updating Medicare physician fees in 2006 and thereafter," the physician payment amendment stated.

The provision, offered by Sen. Jim Bunning (R, Ky.), also calls on the Centers for Medicare & Medicaid Services to change the way the formula is calculated. That could include eliminating Medicare-covered drugs and biologics from the physician spending totals used to determine updates and more accurately accounting for the direct and indirect costs resulting from government coverage decisions.

Under the current payment formula, when spending for physician services exceeds an annual target, called the sustainable growth rate, future payments must be reduced to make up for the excess spending.

Physician groups, including the American Medical Association, argue that doctors have been held responsible for increases stemming from higher drug costs and new coverage mandates, despite having no control over this spending.

Although the payment formula provision, as well as the entire budget resolution, is not binding on Congress or the Bush administration, physician groups welcomed the support the language expressed.

"We applaud the goal of this important initiative to ensure stability in the Medicare payment system for physicians and other health care professionals, and to preserve access for our nation's seniors," AMA Executive Vice President Michael Maves, MD, wrote in a letter to Bunning. "[The provision] is a significant and positive step in the direction of acknowledging the problems with the payment formula and developing a long-term solution."

Congress stepped in last year to fix the payment formula in the short term. The Medicare reform bill signed into law by President Bush stipulated that the update could not drop below 1.5% in 2004 and 2005.

Earlier in March, CMS preliminary estimates showed that the formula would have resulted in a 3.6% cut in 2005 physician payments if not for the legislation's guaranteed increase. CMS must issue a final estimate by Nov. 1. This could differ from the current projection. But CMS said it does not expect the formula to generate an update that would exceed the mandated 1.5% raise.

"Although our estimates may change, it appears likely that the statutory formula will produce an update of less than 1.5%," said Thomas Gustafson, PhD, acting director of the CMS Center for Medicare Management.

CMS also estimated that physicians will face across-the-board cuts in 2006 and each year thereafter until at least 2010 unless the formula is changed.

In its March report to Congress, the Medicare Payment Advisory Commission said current physician payment levels are adequate and recommended a 2.6% update for 2005. But the panel did not offer any suggestions about how to alter the payment formula.

MedPAC has been using a framework for recommending updates that looks at the adequacy of current payment levels, the expected increase in physicians' costs and a prediction of productivity gains.

Congressional staff members have indicated that the committees that handle Medicare issues are likely to hold hearings on potential fixes for the payment formula, but solutions so far have been elusive.

"The thing with the formula is MedPAC doesn't even know what to do," one House GOP staffer said. "When an advisory commission for Congress doesn't know how to advise Congress, you know you're in trouble."

After passing two temporary relief measures in the past two years, House Republicans are hoping to come up with a permanent fix to the formula. But to get it passed, they might need CMS to help lower the price tag of such legislation by making administrative changes independently.

"The uncertainty of doing a two-year fix or a three-year fix just doesn't make sense because it's very clear the formula itself is broken," the staffer said. "We've been trying to get the drugs out for a long time. We're probably going to encourage the administration to do that again."

CMS has maintained in the past that it does not have the authority to make many of the changes physician groups and lawmakers have requested. That could mean a long and arduous process to find an affordable and workable solution.

"Congress isn't prepared to tackle it this year, and in the budget environment next year, it's going to be a heavy lift," a Senate Republican staffer said.

"We've got to figure out what the options are, what the costs are at this point. To say that there was a game plan would be overstating it quite a bit."