Medicare reimbursement frozen; focus returns to pay formula

Washington -- No sooner had Congress written the final chapter on Medicare physician payments for 2006 when a new book, fraught with even more budgetary uncertainty, opened for 2007.

The House christened its new legislative year by approving a measure left over from the previous session that restores doctors' reimbursements to last year's levels, paving the way for President Bush to sign the bill. Congress ran out of time at the end of last year to approve the rate freeze, which erases a 4.4% cut that went into effect Jan. 1.

Most physicians will not need to do anything special to receive the payments to which they are now entitled. Medicare carriers will be instructed to adjust retroactively any claims they already have processed this year and reimburse doctors for the difference. Doctors will need to bill some secondary insurers to get the money they are owed if the plans don't automatically reprocess the claims.

But an estimated 4.6% cut looms on the horizon for 2007, and physicians already are falling behind when it comes to keeping up with their expenses. While Medicare payments will remain static for the year, the costs of running a practice continue to rise.

"Today's congressional action stops this year's Medicare physician payment cut, but reimbursements still fall short of the cost of providing care to seniors," AMA President J. Edward Hill, MD, said after final passage of the rate freeze. "We must build on the momentum and awareness raised in 2005 to make 2006 the year Congress permanently repeals the broken Medicare physician payment formula."

The AMA was joined in its call for a payment system overhaul by such groups as the American College of Emergency Physicians, which worries that insufficient reimbursements will cause doctors to drop out of Medicare and leave their patients unable to find new sources of care quickly enough. "Congress has applied a new bandage, but we still need to fix the underlying problem," said Frederick Blum, MD, ACEP's president.

But within days of the bill's passage, the White House called for a new level of Medicare austerity that could complicate this plan. In Bush's proposed fiscal year 2007 budget, he recommends slashing Medicare payments by roughly $36 billion over the next five years. The plan leaves no room for the tens of billions of dollars that would be required to align physicians' reimbursements with their costs of providing care.

While the majority of the reductions would come on the backs of hospitals, skilled nursing facilities and medical equipment providers rather than physicians, doctors surely would feel the pinch when they tried to procure funding for a rate overhaul, congressional aides said. The White House and its allies in Congress likely would demand that the money be offset with even further reductions in other areas of the Medicare budget -- a plan that would meet resistance from those slated for cuts.

A skeptical Congress

The budget that Bush sends to Congress is only a blueprint and a starting point for discussion. Lawmakers can reject the president's reduction plan and leave more budgetary room for a possible physician payment fix.

The massive deficit-reduction bill that served as the vehicle for the 2006 rate freeze already slows the growth of public health programs, generating strong criticism from groups representing beneficiaries. Lawmakers who rang the final bell on this bruising fight less than a week before Bush presented his proposed budget might not have the appetite to make more deep cuts to entitlement programs so soon.

"Congress just finished reducing the growth of Medicare and Medicaid by $11.1 billion over the next five years, and it wasn't an easy legislative accomplishment," said Senate Finance Committee Chair Charles Grassley (R, Iowa). "Any more reductions of a significant scope could be difficult this year."

To extend tax cuts and bolster the budgets for the departments of Defense, State and Homeland Security, the White House calls for reductions in nearly every other federal agency. Some GOP appropriators, the lawmakers designated to shepherd bills to fund the government next fiscal year, gave a cool reception to this element of the Bush plan.

"The president's FY07 budget proposal is going to require substantial modifications by the Congress," said Sen. Arlen Specter (R, Pa.), the upper chamber's top health appropriator.

Lawmakers cannot afford to ignore the warning that Bush made about physician reimbursement, the AMA said. "President Bush's budget request to Congress briefly mentions impending Medicare physician payment cuts that are certain to have a negative impact on access to care for seniors and baby boomers in the years ahead," Dr. Hill said. "Physicians cannot sustain these deep reimbursement cuts without being forced to make difficult practice changes."

Congress does not have the luxury of letting Medicare spending growth continue on its current path, the White House warned. If it is not reined in, the 3.4% of the gross domestic product currently being eaten up by Medicare will balloon to 8.1% by 2040 and 14% by 2070, said Dept. of Health and Human Services Secretary Michael Leavitt.

"No nation can sustain that level of growth and maintain any level of economic vibrance -- economic vibrance that is absolutely necessary to produce the dollars required to care for those to whom we provide care," he said.

Automatic update system

Medicare law incorporates a warning system that would require the White House to fast-track spending reductions for congressional consideration. The alarm would be tripped after the second time in a row that the program's trustees issue an annual report saying that 45% or more of total Medicare expenditures need to come out of general tax revenues in one of the following six years. If spending trends continue, Bush would be required to submit the legislative proposal at the beginning of 2008, his final year in office.

But the president has proposed strengthening this trigger by implementing an additional provision that would begin slowing the program's growth automatically once spending surpassed the 45% level. If Congress were to approve Bush's plan, all Medicare payments -- including those to physicians -- would start decreasing 0.4% each year that spending exceeded this threshold.

Medicare's trustees predict that the threshold will be reached in 2012, but Centers for Medicare & Medicaid Services Administrator Mark McClellan, MD, PhD, said enactment of the $36 billion of proposed reductions this year would push the date back to 2017.

In the meantime, the administration is ready to work with Congress on any proposals that will make entitlement programs more fiscally manageable with the help of a new bipartisan presidential commission on Medicare, Medicaid and Social Security, Dr. McClellan said. Congressional aides said further freezes or cuts to physician payments would not be off the table during these discussions.