Fix Medicare's flawed pay system

It doesn't take an economic genius to figure out that small businesses that run one of their lines of operation at a loss eventually will have to make some hard choices. That decision is usually to limit or drop the unprofitable part of the enterprise.

This is the choice Medicare could soon force physicians to face. But the money loser in this case isn't some sort of widget -- it's care for patients with disabilities and seniors. Yearly Medicare pay adjustments are simply not keeping up with costs.

Doctors want desperately not to have to make the hard choice that Medicare is pushing them toward -- to trim services for these patients or even stop seeing new patients.

This desire to keep serving Medicare patients has led physicians to put up with inadequate payment for quite some time now. From 1991 through 2005, medical practice costs will have increased by 41%, but payments to doctors will have risen only 18%.

So far, this hasn't caused major disruptions in Medicare patients' ability to get care, according to the Medicare Payment Advisory Commission. But recent MedPAC findings indicate that there are some persistent access problems, usually among patients who are new to fee-for-service Medicare or who have relocated.

These access woes could build into a crisis if payment doesn't pick up. Sadly, the exact opposite will happen unless the flawed physician payment formula is repaired.

Under the current system, doctors are slated for a 5.2% reimbursement cut in 2006 and similarly sized reductions for several years afterward. The result would be payment reductions totaling 31% over the next eight years. At the same time, the cost of running a physician practice and caring for patients is expected to increase 19%.

These cuts must not occur. The American Medical Association has made stopping them one of its highest priorities for the year.

The Association's efforts received a welcome boost from MedPAC, which recently voted to recommend a 2.7% payment increase next year. This congressional advisory panel's suggestions often serve as a starting point for debate over physician payment among lawmakers. Members of Congress should take this advice to heart and avert the reimbursement cut.

But a one-year change is the equivalent of dumping a bucket of water out of the sinking Titanic. Lawmakers need to scrap the formula, known as the sustainable growth rate, that has caused the physician payment problems. If physician spending in a given year exceeds the target set by this formula, reimbursement in the following year is cut.

The trouble is that this formula is tied to the gross domestic product, which bears no relationship to patients' health care needs or physicians' costs. It also penalizes physicians for Medicare spending that is beyond their control, including new, expensive medical technology; coverage decisions that increase patient demand for services; rising costs for drugs physicians administer in their offices; and the shift of patient care from the hospital to the doctor's office.

These flaws in the payment formula have caused Congress to have to enact several one-year adjustments to avert physician payment cuts and preserve beneficiaries' ability to get the care they deserve. This makes it impossible for physicians, as small business owners, to project revenue and make necessary financial decisions, let alone innovate.

Doctors, Congress, patients and Medicare officials should not have to struggle with the same difficulty year after year.

A new, more fair way to calculate physician reimbursement is essential. MedPAC has recommended that the defective sustainable growth rate be replaced with a system under which yearly payment changes are based on an assessment of practice cost increases, adequacy of physician reimbursement rates, and beneficiaries' access to care. The AMA agrees and is pushing for just such a change.

Ordinary physicians can do their part, too. The first step is to educate themselves and their patients about the issues. The next is to join the AMA's Grassroots Action Network and get involved. By sharing their concerns with both their communities and their members of Congress, doctors can succeed in this effort. The result would be a better Medicare -- fairer for physicians and one in which patients won't have to worry about access to care.