Medicare forecast of 4.7% pay cut renews calls for pay reform

Washington -- Another ominous annual report from Medicare's caretakers early this month intensified the distress over upcoming cuts to physicians and the ever-rising costs of fixing the problem.

The Medicare Trustees Report projects a 4.7% reduction in physician reimbursements in 2007 and 37% in cumulative cuts over the next nine years. Unless Congress steps in, each year in the next decade or more will feature a roughly 5% cut in doctors' pay while the costs to physicians of providing care increase by more than 2%. Spending on the Part B side of the program, meanwhile, continues to rise at alarming levels and puts growing strain on beneficiary and government pocketbooks, the trustees said.

"Today's report on the dire future of Medicare cries out for reforms to ensure that Medicare will be there for future generations," said American Medical Association Chair Duane Cady, MD. "Congress must take an immediate step to preserve seniors' access to physicians by tying Medicare physician payments to the cost of caring for seniors."

The gloomy outlook from the program's trustees, who also predicted that the hospital side of Medicare would go bankrupt in 2018, prompted a call to action as well from Health and Human Services Dept. Secretary Michael Leavitt. "The message of this report is urgency," he said. "I do not want to stand here another year with just another bad report and another year of inaction."

But while physicians, federal officials and lawmakers agree that a long-term solution is vital, the recurring problem of how to fund such an intervention is prompting continuing debate. Policy-makers exhibit signs that Congress' usual route of approving last-minute, temporary rate increases to doctors is proving increasingly less palatable to many.

In response to the trustees report, the Bush administration repeated its call for nearly $36 billion in Medicare reductions over five years to hospitals and other nonphysicians. The White House also pushed again for a physician quality reporting program that would lead to reimbursements based on individual performance against predetermined standards. Through a combination of these two moves, the White House said, it can address physician payment without adding to Medicare's long-term financing woes.

No new money?

Centers for Medicare & Medicaid Services Administrator Mark McClellan, MD, PhD, said Congress could accomplish a long-term solution to the doctor pay problem in a budget-neutral fashion, meaning the funds to pay for the fixes will come from elsewhere in the system, rather than from new appropriations.

"We can't reduce physician payment rates by 4% to 5% each year for many years to come," he said. "But conversely, nor can we simply add more money into a payment system that is already projected to grow much faster than the economy."

While he didn't rule out supporting cuts to other Medicare participants or increased premiums to beneficiaries, the CMS chief said physician quality reporting alone "would go a long way" toward addressing the long-term funding problem. By creating an incentive for doctors to provide better quality care, rather than simply more services, subsequent savings to the program could be funneled back into higher reimbursements, he said.

The AMA supports quality improvement efforts but disputed this assessment. Establishing benchmarks will cause doctors to prescribe more preventive care -- a move that initially will raise Medicare spending rather than lower it, the AMA says.

"Quality improvements may save money for the health care system as a whole through reduced hospitalizations," Dr. Cady said. "However, because of the way Medicare is currently structured, with funding for Parts A and B in separate silos, savings generated from physician quality improvements go to Medicare Part A."

Congress might not soon heed the White House's call to fix the physician payment system without new money.

Senate Republicans, including Finance Committee Chair Charles Grassley (R, Iowa), in March rejected President Bush's plan for the $36 billion in cuts when they approved a budget blueprint for the upcoming fiscal year. Even after receiving the latest trustees report, Grassley was noncommittal about dialing back Medicare expenditures this session.

"At some point, Congress is going to have to get down to the difficult business of restraining the cost growth of these programs," he said.

If lawmakers don't tackle long-term financing this year, they likely will face significantly more pressure to do so next year. The trustees projected that the portion of Medicare spending that will need to come out of general tax revenues will exceed 45% in 2012. If next year's report also predicts that this level will be exceeded within six years, a legislative alarm written into the Medicare statute will sound. The White House then will need to fast-track more Medicare cuts for congressional consideration.