House, Senate measures propose 2.7% increase in Medicare pay

Physicians are buoyed by the hope of a fix to the current payment formula, which otherwise would impose a 4.3% reduction in reimbursement next year.

By Joel B. Finkelstein — Posted June 6, 2005

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Washington -- The initial shots in the fight to prevent Medicare physician payment cuts have been fired in Congress with the introduction of two bills to adjust the reimbursement formula.

The measures, one that would replace the current system permanently and the other that offers a more temporary solution, have doctors optimistic that lawmakers will act soon to ensure that reimbursement remains at levels that allow them to sustain current participation in the program.

"We would love to have a permanent fix," said J. James Rohack, MD, American Medical Association chair. "But it's clear that if neither bill passes, there will be a real problem with physicians having to make decisions of whether to accept new patients."

Under current law, the Centers for Medicare & Medicaid Services is required to adjust payment to physicians based on what doctors see as a flawed formula that ties reimbursement changes to the gross domestic product. Under that methodology, physician payment would be cut an estimated 4.3% next year.

Similar reductions to physician reimbursement have been averted over the past several years by congressional action. Most recently, the Medicare Modernization Act of 2003 replaced cuts with increases of 1.5% for 2004 and 2005. But Congress did not come up with a permanent solution.

The House legislation, sponsored by Reps. Clay Shaw (R, Fla.) and Ben Cardin (D, Md.), aims to change that situation. It would set next year's update at 2.7%. Then, starting in 2007, it would replace the current formula with one linked to the rising cost of providing care.

In introducing the bill on the House floor, Cardin blamed the reimbursement formula for the loss of physician participation in his state. "The current physician payment formula is flawed, and it jeopardizes the ability of physician practices to make sound long-term financial decisions," Cardin said. "This bill helps remedy the problems, but Congress needs to replace the current system with one that assures adequate and appropriate payment to Medicare providers."

The Senate bill, sponsored by Sens. Jon Kyl (R, Ariz.) and Debbie Stabenow (D, Mich.), would make a two-year adjustment to physician payments. It calls for at least a 2.7% increase for 2006 and a rise in 2007 linked to the Medicare Economic Index, which measures changes in costs faced by physicians. It includes no adjustments beyond 2007 to prevent physician payment cuts anticipated each year through 2011.

Both bills are based on recommendations from a March Medicare Payment Advisory Commission report. MedPAC suggested that next year's physician reimbursement update should equal the projected MEI of 3.5%, minus a 0.8% increase in physician efficiency that the commission predicts will occur.

The AMA supports both bills, Dr. Rohack said. But passing the permanent fix would let physician groups spend more time on other pressing issues, such as liability reform and the problem of the uninsured.

He offered a medical analogy. "Say one needs to have a bypass surgery and have four blood vessels fixed. When you open up the chest, you'd like to have all four vessels fixed at once, rather than just fixing one, closing the person up, coming back two years later, opening them up again and having to keep coming back."

The cost of care

Over the past several years, Medicare reimbursement has not kept up with the increasing cost to physicians of providing care. Not only has the price of medical liability insurance exploded, but doctors' practice expenses, including staff salaries, office equipment and even basic utilities, continue to increase steadily.

As those costs rise, the inadequate payment makes it more difficult for physicians to take on new Medicare patients, said Sharon A. Brangman, MD, professor of medicine and chief of the division of geriatrics at the State University of New York Upstate Medical University in Syracuse.

"It is devastating for physicians, but it has even more impact for older Americans," Dr. Brangman said. "By reducing reimbursement to physicians further, it's going to jeopardize the care that older Americans get. Right now there are already significant numbers of physicians who are not accepting Medicare patients."

Any cuts would force physicians to take another look at how many Medicare patients they can afford to see, Dr. Rohack said. "It's pretty clear from the surveys we've done that physicians have said, 'If the cuts go through, I'm not going to see any new patients, and I am really going to have to consider whether I can continue to care for the patients I have,' " he said.

Those are calculations he is going through himself. With practice costs rising on average 3% next year, the impending rate cut of 4.3% represents a 7% difference between what he would get paid for Medicare patients versus privately insured ones.

"As a cardiologist, 56% of my practice is Medicare," he said. "So I'm going to have to decide, can I keep taking new Medicare patients into my practice knowing that for over half of my practice I am going to be losing 7%?"

Some physicians could try to make up for the cuts by seeing more Medicare patients instead of fewer, Dr. Brangman said. But that approach really doesn't work, she added.

"Technically, I would have to see more patients to make up that difference. But it is very hard to rush a 90-year-old through an exam. So, in effect, I will end up being able to provide less care," she said.

She also worries that cuts will mean there will be fewer specialists to whom she can refer her patients.

"It's going to create more barriers for older Americans in receiving high-quality care," she said.

But Dr. Brangman also said the problems with Medicare reimbursement go deeper than just rates that haven't kept up with the pace of rising medical costs.

"Medicare only reimburses for face-to-face contact between physician and patient. Often my older patients come in with four to six chronic medical problems that require me to interact with agencies and services that are not face-to-face contact but still essential to care," she said.

For primary care physicians, linking patients to ancillary services, such as home health care agencies, dietitians and other unreimbursed activities only compounds the problem of low reimbursement, she said.

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Bill basics

House legislation (HR 2356)

  • In 2006, the bill would increase Medicare physician reimbursement by 2.7%, based on the recommendation of the Medicare Payment Advisory Commission in its March report.
  • Starting in 2007, the measure would permanently replace the current reimbursement formula with one that takes into account growth in the cost of providing care and any predicted increases in physician efficiency.

Senate legislation (S 1081)

  • Also following MedPAC's lead, the bill would increase Medicare physician reimbursement in 2006 by 2.7%.
  • In 2007, the measure would link the payment update to the Medicare Economic Index, which is estimated to be about a 2.6% increase. It would not permanently change the payment formula.

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Medicare mismatch

For the past several years, Medicare physician payment updates have not kept up with the rise in practice costs, as measured by the Medicare Economic Index. Recently introduced legislation would replace next year's projected 4.3% reimbursement cut with a 2.7% increase.

MEI Physician
2006 2.9% -4.3%
2005 3.1% 1.5%
2004 2.9% 1.5%
2003 3.0% 1.4%
2002 2.6% -4.8%
2001 2.1% 5.0%
2000 2.4% 5.5%
1999 2.3% 2.3%
1998 2.2% 2.3%
1997 2.0% 0.6%

Note: Data for 2006 are estimates.

Source: Centers for Medicare & Medicaid Services, April

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External links

Thomas, the federal legislative information service, for bill summary, status and full text of the Preserving Patient Access to Physicians Act of 2005 (HR 2356; S 1081) (link)

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