Medicare trustees: Gloomy forecast for physician reimbursement rates

Washington -- The annual report from Medicare's trustees once again dishes up sobering news for doctors: They can expect six straight years of rate reductions starting in January unless lawmakers act to stop it.

Congressional intervention already has staved off two previous rounds of cuts, and more help will be needed to prevent a cumulative reduction of about 26% over the six-year period. Such projections actually represent an improvement over last year's report, which predicted a roughly 31% cumulative reduction before rates would start to improve.

But the AMA and other groups said that the new estimates provide little solace to a physician community that cannot count on federal dollars to keep up with practice costs.

"The new Medicare trustees report projects cumulative physician payment cuts of approximately 26% beginning in January 2006 and continuing through 2011, while at the same time the costs of running a practice and caring for patients will go up 15%," said AMA President-elect J. Edward Hill, MD. "These cuts present a serious threat to patient access to care."

Meanwhile, the Medicare trustees acknowledged that their projections are unrealistic because Congress will likely act.

"Multiple years of significant reductions ... are very unlikely to occur before legislative changes intervene, but these payment reductions are required under the current law payment system and are reflected in the projections shown in this report," they said.

However, such a move by Congress would further raise the amount that seniors and patients with disabilities will need to kick into the program in premiums. Even without a rate fix, higher-than-expected Medicare Part B costs will necessitate another double-digit increase for enrollees next year.

Addressing the Part B cost situation alone, "would require a 12% increase in the 2006 premium along with the corresponding general revenue transfers," the Medicare trustees said. "This increase would need to be larger should legislative changes block the negative physician update that will occur for 2006 under current law."

The situation is similar to last year's scenario. Medicare beneficiaries saw their Part B premiums rise more than 17% in 2005, partly as a result of congressionally-mandated physician pay boosts. A 12% increase next year would raise the current premium of $78.20 per month to $87.70 starting in January 2006.

Turning next year's 4.5% physician cut into another 1.5% raise would bring the premium increase up to about 15% for seniors, said Richard Foster, chief actuary at the Centers for Medicare & Medicaid Services.

But doctor pay is not the only reason for double-digit premium increases, Dr. Hill said. Only a third of last year's raise, for example, was linked to doctors' reimbursement updates.

"Many factors contribute to increases in Medicare patients' premiums," he said. "These include higher payments to Medicare Advantage plans, new preventive benefits and spending for the many services covered by Part B, including hospital outpatient department services, durable medical equipment, clinical laboratory tests, ambulance services and home health care, in addition to physician services."

The Medicare trustees point out in their report that those nonphysician services have contributed to the rising Part B costs as well.

Many burdens to bear

The higher-than-expected costs that are driving the premium increases are also putting more strain on the federal government, which must use general revenue transfers from the U.S. Treasury to pay for the 75% of costs not covered by beneficiaries.

"The good news is that Part B is not going to go broke," Foster said. "The bad news is that in each of the last five years, Part B costs have grown by over 10% each year, and that's a pretty tough growth rate to keep up with on the financing side."

Exactly why the costs have been rising more than the Medicare trustees' predictions remains somewhat of a mystery, said CMS Administrator Mark McClellan, MD, PhD.

"We are looking into this closely right now and trying to understand exactly why Part B costs are going up so much when physician payment rates rose by just 1.5% [in 2004 and 2005] and the other legislative changes taking effect reduced Medicare costs in many ways, such as more competitive payments for the drugs covered in Part B," Dr. McClellan said.

The trustees report cites an aging Medicare population as one possible reason why federal officials are finding it difficult to estimate yearly costs more accurately. CMS also suspects that physician billing practices may have something to do with the funding disconnect.

"In this analysis, we're seeing a lot more billing for more extensive office visits, more lab tests, more imaging procedures," Dr. McClellan said. "We'll be saying more about this soon."

The CMS chief declined to say what steps the agency might take, but he stressed that the program's overall fiscal health still is the bigger problem.

Medicare's inpatient hospital side, or Part A, is funded through workers' payroll taxes and will become insolvent in 2020 under the Medicare trustees' current projection.

The prospect that the hospital insurance trust fund will dry up relatively soon has health policy experts once again debating significant changes to Medicare.