CMS rule hurts chances for pay reform

Washington -- The Centers for Medicare & Medicaid Services delivered a disappointing rejection to doctors hoping that the agency would help cover the costs of overhauling the Medicare physician payment system.

The final 2006 payment rule that CMS recently unveiled had some expected bad news in the form of a confirmed 4.4% reimbursement cut, which will kick in Jan. 1, 2006, unless Congress acts to prevent it. But buried in the more than 1,200 pages of regulations was a long-awaited statement on an administrative step that doctors believe would fix part of the problem with the Medicare payment formula and help pave the road to broader reform.

Medicare officials determined that they lack statutory authority to remove physician-administered drugs from the sustainable growth rate formula that helps determine rates.

Doctors argue that spending on these drugs should not be part of the physician payment formula because they cannot control medication prices. Reimbursement for these drugs is not handled through the physician fee schedule, and their inclusion in the formula artificially boosts Medicare spending on physician services, they say. This results in payment cuts when the level of spending on physician services exceeds the formula's predetermined target.

For more than a year, CMS has been under pressure from lawmakers and groups, including the American Medical Association, to take the drugs out of the picture retroactive to 1996. This move would rejigger the fee schedule to free up more than $100 billion that would flow back into doctors' pay.

Several areas of Medicare law prevent the federal government from adopting this strategy, the agency argues.

"For example, the statute requires the estimated SGR be refined twice based on actual data," the rule states. "We do not see a legal basis to re-estimate the SGR and allowed expenditures for a year after it has been estimated and revised twice."

For the AMA, the agency's view came as a big disappointment.

"CMS has the ability to reduce the severity of the cuts by removing physician-administered drugs from the Medicare physician payment formula," said AMA President J. Edward Hill, MD. "Members of Congress have repeatedly called on CMS to remove drugs from the payment formula, as has the AMA. The administration has failed its obligation to Medicare patients to preserve their access to care."

A big wrench in the works

The development has the potential to place into doubt the long-term reimbursement reforms sought by physicians.

Doctors face annual cuts comparable to January's 4.4% reduction for most of the next decade unless policy-makers commit more money to the new system. By declining to add some of the needed funding administratively, Medicare officials are rejecting what many say is their only option to circumvent the reductions that the payment formula requires CMS to impose.

The Bush administration counters that looking back to the year 1996 and rebasing the system as if physician-administered drugs were never a factor would not do enough to address the problem. Rates would not start turning around for doctors soon enough, CMS Administrator Mark McClellan, MD, PhD, told reporters in a conference call.

"Even if we were able to do this, doctors would still get a significant negative payment update in 2006 and subsequent years," he said. "This change would also not help us get to a more sustainable payment system for physicians."

But the AMA says an immediate turnabout in doctors' pay is not the primary point of seeking the administrative fix. Instead, the move would take a large amount of the financial pressure off Congress as it debates its own plans to overhaul the system, according to the Association.

House Ways and Means Committee Chair Bill Thomas (R, Calif.) and health subcommittee Chair Nancy Johnson (R, Conn.) recently described the burden that lawmakers face in a letter to Dr. McClellan.

"A permanent legislative fix to the [physician payment] formula would be prohibitively expensive given current interpretations of the formula but could proceed through our joint efforts combining administrative and legislative actions," they stated.

CMS inaction raises the chances that Congress will need to foot the whole bill for replacing the current system with one that pays doctors according to the actual costs of providing care. The White House recently estimated that this price tag is now $183 billion over 10 years and rising.

Whether the money necessary to fix the problem comes from Congress or the Bush administration, taxpayers and beneficiaries are still ultimately footing the bill, Dr. McClellan said. With the understanding that taxpayer dollars and beneficiary premiums are at stake no matter what, the agency says it will continue to engage Capitol Hill on other options.

So far, lawmakers have not proposed broad reform. Instead they are focusing on preventing next year's Medicare physician cuts. But they are struggling to find room in the budget to do that.

Two days after CMS officially nixed the administrative intervention, the Senate approved a 1% raise for physicians in 2006 that -- while welcomed by doctors -- will not keep pace with the projected increase in practice costs next year.