Medicare pay formula: Overhaul is needed

Congressional action saves physicians from a scheduled pay cut and adds momentum to the push for a change in the way Medicare pays doctors.

Posted Feb. 27, 2006.

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Early this month, Congress finalized action to spare physicians from a drastic 4.4% cut in 2006 Medicare physician payments, which took effect Jan. 1. The lawmakers replaced it with a retroactive rate freeze at 2005 levels.

Organized medicine fought hard for this intervention, and it was a long time coming. Even now, it is not the end of the story.

It was a relief when legislators finally took this step after procedural issues stalled progress late last year. The Association also expressed appreciation for the advance planning by the Centers for Medicare & Medicaid Services to facilitate quick implementation of the 2006 payment change as soon as it became law. Since then, the AMA has continued to work closely with CMS to make the process as smooth as possible for physicians.

But it is important to remember that, even with this update correction factored in, the year's reimbursements will fall short of the actual cost of providing care to seniors. Thus, the AMA is right to maintain its commitment to securing necessary changes in the way physician payments are calculated under Medicare. Specifically, the current payment schedule includes an estimated six straight years of cumulative cuts totaling 26% -- a set of numbers that could become even more stark with the March release of this year's Medicare Trustees report. These reductions would occur even as practice costs continue to increase.

Moreover, Congress' recent action represents only an interim step. It does not address the next crisis that will kick in with the planned 2007 reduction, nor does it get at the true underlying problem: the Medicare physician payment formula with its flawed sustainable growth rate. That is why the AMA is seeking long-term reforms that would link payments to the actual practice costs of providing care, rather than the fluctuations of the U.S. economy, as it is currently.

Additionally, as policy-makers look to physicians to use technological advances such as electronic medical records and other trappings of 21st-century medicine, it is even more critical that doctors be provided with adequate economic resources to do so. Such foresight would support physicians as they work every day to provide quality care to patients.

In the absence of such action, though, the landscape is bleak. According to a national 2005 AMA survey, physicians cannot continue on the current path of being paid less than the cost of providing care without consequences. Thirty-eight percent said the scheduled 2006 cut would have forced them to decrease the number of Medicare patients they treat. And, for those physicians who would continue to treat these seniors, 61% said they planned to defer purchasing new medical equipment, and 54% said they likely would have to take a pass on buying information technology.

The Medicare Payment Advisory Commission, the body that advises Congress on this issue, even voted at its January meeting to recommend a 2.8% increase in doctors' 2007 payments in place of the planned reduction. Congress officially will receive the suggestion when MedPAC releases its annual payment report next month.

The task at hand is clear. Attending to needed corrections in the Medicare physician payment formula -- for 2007 and beyond -- is a high priority on the AMA health care advocacy agenda and should be a must-do for lawmakers, too.

After all, the formula is broken. The Association has pledged to be relentless in its push for change. Congress should not stop short and let this legislative session go by without providing physicians the means to care for the health of seniors next year and for years to come.

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External links

The AMA's national legislative activities regarding Medicare physician payment reform (link)

Questions and answers from the AMA on 2006 Medicare physician payment update claims processing, in pdf (link)

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