Battle looming over Senate's 1% Medicare payment boost

Washington -- Congress moved one step closer to giving doctors another one-year Medicare payment fix, but physicians are not out of the woods yet.

The Senate recently passed its version of a budget reconciliation bill that contains a 1% pay increase for 2006. At press time, the House was moving toward passage of its own deficit-reduction measure, which does not address physician reimbursement. Without congressional action, the Medicare payment formula would result in a 4.4% cut for doctors next year, as confirmed by the Centers for Medicare & Medicaid Services payment rule issued Nov. 2.

Upon House passage of its measure, both chambers will start conference committee negotiations to reconcile the two versions of the bill. It is during this process that the American Medical Association hopes to get the Senate's 1% update boosted to a figure closer to next year's projected 2.6% increase in practice costs.

Providing yet another temporary reimbursement raise that doesn't keep pace with rising practice costs makes long-term Medicare payment reforms more politically difficult and expensive in future years, said AMA President J. Edward Hill, MD.

"We certainly are looking forward to the conference committee to see if we can improve that payment issue," he said. "But we still want elimination of this formula. Every time they give you a little increase in your payment temporarily, they kick that can down the road further and it's more expensive the next year."

Senate aides predicted that the Association's effort would be tough to accomplish during negotiations that are aimed at cutting billions out of the budget, not at spending additional money.

Doctors, who would receive an additional $10.8 billion over five years through the pay raise, emerged as one of the few relative winners under the upper chamber's bill. In order to procure net savings of $10 billion from Medicare and Medicaid, bill sponsors had to propose more than $26 billion in total cuts in the programs to offset the physician funding and other spending increases in the measure.

The two versions of the legislation are vastly different, with the House measure proposing roughly $54 billion in net cuts to both health and non-health programs over five years compared with the $35 billion figure for the final Senate package. Pressure from House negotiators and budget hawks to increase the final tally of cuts could place the physician piece in danger.

The Bush administration has also set its sights on eliminating one of the largest sources of Medicare cuts in the Senate bill -- a reduction of $5.4 billion from a fund designed to convince managed care plans to offer Medicare coverage. The White House issued a statement prior to Senate passage announcing that President Bush's aides would recommend he veto the final measure approved by Congress if it still cuts the money to the health plans.

If lawmakers respond to the veto threat by dumping the provision, they would be under pressure to cut additional spending out of the bill to make up for the deletion.

Unwelcome accompaniments

The level of the Senate's proposed Medicare update is not the only concern that the AMA has with the budget legislation. The measure also contains at least two substantial provisions that the Association opposes in their current form.

Senate Finance Committee Chair Charles Grassley (R, Iowa) included his version of a Medicare value-based purchasing bill in the budget measure that passed the Senate. The proposal, which would reduce doctors' payments by up to 2% in order to fund a quality bonus pool, fails to meet several of the AMA's principles on pay-for-performance programs.

Physicians who meet or exceed certain predetermined quality measures would be eligible to receive added payments from the reserve fund. But the Grassley plan violates an AMA requirement that such quality measures be determined by physicians, as well as the Association position that doctors who fall short of the standards not be punished in order to reward others.

During the conference negotiations, the Association will aggressively promote its stance to lawmakers that pay-for-performance is incompatible with the current Medicare payment system, said AMA Trustee John H. Armstrong, MD. Although the 1% raise in the Senate bill is a good start, it doesn't come close to addressing the long-term funding crisis facing physicians and preventing a quality payment initiative from succeeding, Dr. Armstrong said.

"A permanent fix needs to be the focus of the Congress," he said. "With this temporary fix, it is ill-advised to attach a value-based purchasing program."

But removing the pay-for-performance section from the legislation would have its own cost. Lawmakers estimate that rewarding high-quality and more efficient care through the proposed program would save the government roughly $4.5 billion over the next five years. Once again, an attempt to remove the language would likely prompt additional spending cuts elsewhere in the budget.

The Senate-passed bill would also revive a ban on physicians referring patients to specialty hospitals in which they have an ownership interest. An 18-month self-referral ban expired in June, and CMS has said that it may start approving applications for new specialty hospitals starting in January if Congress does not intervene again before the end of the year.

The AMA strongly opposes the renewal of the prohibition. It argues that specialty hospitals promote competition in the health industry and provide physicians with more flexible practice options. Lawmakers, including Grassley, who support the move say that it will prevent specialty facilities from cherry-picking healthier patients in an attempt to maximize profits for physician investors.

Congressional action would continue to prevent the construction of new facilities, which has effectively been on hold since lawmakers approved the initial ban in 2003. But whether the provision survives conference negotiations will have less of an impact on the total budget-reduction figure that Congress is hoping to achieve. Lawmakers estimate that banning physician self-referral would only save a relatively small $22 million over five years.