Feds say Medicare pay freeze could double the cut for doctors next year

Washington -- The ink was barely dry on the law that prevented a 2007 Medicare physician fee reduction when the office that makes official cost predictions for Congress projected a 2008 cut that will be even more difficult to reverse.

Medicare pay to physicians will be reduced about 10% next year if current law remains unchanged, the Congressional Budget Office said Dec. 28, 2006, in its final cost assessment of the legislation that averted a 5% cut this year. So unless Congress overhauls the system that determines reimbursements or approves another short-term adjustment, next year's cut is expected to be roughly twice what doctors faced before lawmakers intervened in December.

The reason this would happen is that the measure kept this year's rates at 2006 levels but did not build the change permanently into the payment system. This made the reversal of the 2007 physician reimbursement cut billions cheaper for Congress.

But it means that when 2008 rolls around, the payment system will act as if the one-year fix had never occurred. This necessitates a reduction roughly two times as large to get reimbursements back to the level defined by the Medicare formula.

A doubly large projected reduction means that physicians' job of preventing further cuts becomes doubly difficult this year, some congressional aides and lobbyists said.

"That's the problem with [lawmakers] trying to mitigate the budgetary effects of this change," said Randy Fenninger, the Washington representative for the American Assn. of Clinical Endocrinologists. "You just put off one more year what ultimately has to be the day of reckoning."

Complicating the situation is Democratic leaders' plan to follow "pay-as-you-go" budget rules. This would compel lawmakers to find offsets that will fully pay for rate changes or other spending priorities rather than put off funding until future fiscal years.

CBO did not project how much a one-year reimbursement revision would cost next year, but last year's deferred funding decision means it likely would be significantly more costly than the 2007 freeze, estimated at about $2.8 billion. Congress largely paid for this freeze by reducing the size of a fund designed for Medicare managed care plans, but such offsets are becoming increasingly rare.

The heightened difficulty of finding savings elsewhere in the program increases the chances that Congress will allow the full 2008 reduction to go through, something that -- with the exception of 2002 -- has not happened in recent years. That prospect is very worrisome to physicians whose reimbursements are not keeping pace with their costs despite the temporary fixes, said Michele Johnson, senior government relations representative for the Medical Group Management Assn.

"It's kind of hard to contemplate a 10% cut because it's so drastic," she said. "Add on top of that, the fact that a lot of the grassroots are just worn out."

Finding more money

The CBO report is not entirely negative when it comes to Medicare physician pay. Some observers see a hint of opportunity.

Lawmakers set aside nearly $1.4 billion for a "physician assistance and quality initiative fund," for example. The money could be used by the administration to reduce next year's cut by paying all physicians more, though the office notes that the Health and Human Services secretary has broad discretion over exactly where that money will go. HHS may decide to pay only physicians who report on or score well on quality measures approved by the government.

CBO also estimates that Medicare will pay an additional $300 million next year to doctors who participate in the Centers for Medicare & Medicaid Services voluntary quality reporting program this year. Physicians will receive a 1.5% lump sum bonus payment in 2008 if they report on at least three of the program's quality measures for 80% or more of the cases in which the measures apply.

The CBO did not take either of these pools of money into account when making its projection for a 2008 cut. Also, the office did not set its estimate in stone. Although lawmakers refer to the CBO's projections when gauging legislation costs, CMS releases its official estimates several times during the year. Last year, the projected 2007 cut fluctuated by nearly a half-percent before the agency settled on the final reduction estimate of 5%.

But even if physicians get the assistance funds and payment for quality reporting or benefit from revised assumptions, inaction by Congress still will result in a cut significantly larger than it would have been this year. Doctor groups, including the American Medical Association, once again are calling for a long-term solution that would eliminate the growing specter of deep, yearly reductions.

"Congress took critical action late last year to stop the 2007 Medicare physician payment cut, providing an important but temporary reprieve from access concerns for seniors and the physicians who care for them," said AMA Board of Trustees Chair Cecil B. Wilson, MD. "This year we will work with Congress, the administration and seniors to stop the 2008 Medicare cut and enact a more permanent solution to the flawed Medicare physician payment formula."

A silver lining?

Despite the gloomy outlook, physicians actually may be able to use the 10% estimate to their advantage when it comes to persuading lawmakers that a multiyear approach is the way to go, Fenninger said. Instead of waiting until the last minute and muscling through an expensive one-year fix that must be funded right away, Congress could be convinced to work on a long-term package that spreads the immediate fiscal impact of preventing next year's cut over several years.

"When you're squawking about four or five cents on the dollar, people look at you like you're crazy. Ten percent gets a lot more attention and outcry," he said. "You need to find a way that avoids repetition of that number while dealing with the budget consequences, and really the only way to do that is with a long-term solution."

A permanent replacement of the formula that helps determine physician pay could cost hundreds of billions of dollars over a decade, but Fenninger said the longer window of such a solution provides more opportunities to save money elsewhere in the program. Lawmakers might be able to boost base payments to all physicians in part by using funding from controlling the volume of growth in services, for example, or from limiting reimbursements for physicians and facilities that don't meet quality standards.

The next big opportunity for physician groups to make their case for a long-term solution will come in March, when the Medicare Payment Advisory Commission recommends options to Congress for overhauling the payment system, MGMA's Johnson said. Lawmakers already have exhibited a good amount of interest in hearing what MedPAC has to say, she added.