Lawmakers ask CMS help in raising Medicare doctor pay

Washington -- Doctors and lawmakers concerned about projected Medicare cuts are hoping the program's new administrator will be a little more open to change than his predecessor.

In his first month as administrator of the Centers for Medicare & Medicaid Services, Mark McClellan, MD, PhD, already has received a written request from House lawmakers to make changes to Medicare's physician payment formula. Similar requests were rebuffed by the previous CMS administrator, Tom Scully, who maintained that the agency did not have the legal authority to make the changes.

Although Congress passed a temporary reprieve from pay cuts for 2004 and 2005, new CMS estimates suggest that physicians could face seven consecutive years of 5% cuts in payment. Without changes in the formula, physicians in 2014 would be paid at rates about 40% lower than in 2005.

"This is simply unacceptable," House Ways and Means Committee Chair Bill Thomas (R, Calif.) and Health subcommittee Chair Nancy Johnson (R, Conn.) wrote.

The AMA applauded the lawmakers for championing pay reform and called for cooperation to avoid cuts. "The administration can take some immediate steps to ease the burden on physicians," said AMA President Donald J. Palmisano, MD. "But until the Medicare physician payment formula is truly reformed, Medicare patients' access to care will be subject to the vagaries of a formula that does not account for their health care needs."

Thomas and Johnson asked CMS to remove the impact of prescription drug spending growth from the formula, to review its assumptions about physician responses to payment cuts and to better account for the costs of new benefits and other factors affecting physician income. At press time, CMS had not responded to the request.

The sustainable growth rate pay formula relies on an annual spending target that aims to allow spending after certain adjustments to grow at the same rate as gross domestic product. But when spending exceeds that target, payment is cut in future years.

Out of doctors' hands

CMS had some latitude under the law to determine what to include within its definition of physician services. The agency has included spending for certain prescription drugs covered under Part B. These medications accounted for 3.5% of total expenditures under the SGR when the formula went into effect in 1996, but that grew to 10% of spending by 2003.

"This cost growth cannot be controlled by physicians, yet they are being penalized for prescription drug price increases," the lawmakers said. "Taking prescription drugs out of the formula would improve the outlook for future updates considerably."

The letter also challenged the agency's accounting for the cost of new benefits. Medicare law requires the formula to increase the target based on changes in spending resulting from modifications in law or regulation. But CMS does not consider the impact of new national coverage decisions. For example, the agency recently added more than 40 codes for positron emission tomography, but the new spending is not included in the target's calculation.

In its recent estimate of the 2005 update, CMS concluded that there would be no change in spending from the Medicare Modernization Act, despite the addition of coverage for initial screening physicals for new beneficiaries. The Medicare Payment Advisory Commission took exception to that decision and plans to comment on the estimate in its June report to Congress.

Thomas and Johnson also recommended that CMS revisit its assumption about how doctors change behavior in response to pay rate changes. CMS assumes doctors will increase the volume and intensity of the services they provide to offset about 30% of any cut in payment. That means pay cuts must be that much deeper to recoup spending above the target.

The lawmakers said that assumption is based on data from 1994 to 1996 -- before implementation of the SGR. It is unclear whether that productivity adjustment is still valid, they wrote. The letter said CMS also should consider whether tax cuts, which increase doctors' overall income, would lead to decreases in the volume of services.

Congressional committees that deal with Medicare payment issues plan to hold hearings on the SGR formula this summer, but without the administrative changes, the cost of a payment fix could be substantial.