Medicare advisory panel backs doctor pay hike in 2008

Washington -- The commission that advises lawmakers on Medicare rates once again will urge them to replace next year's physician payment cut with a rate increase that better reflects the costs of providing care.

The Medicare Payment Advisory Commission, in a report due to Congress on March 1, will recommend that doctors receive an update equal to next year's estimated increase in costs minus a small percentage to account for an expected increase in physician productivity.

Under current projections, that would give doctors a 1.7% boost in 2008 if lawmakers decided to take the advice. That estimate could change during the year as projections are adjusted.

If the recommendation to revise the 2008 rates is not heeded, doctors could see their Medicare pay slashed by about 10% next year. MedPAC estimated that it would cost the federal government more than $10 billion over five years to make the change that it is suggesting.

The commission's decision to recommend an increase in its annual payment report drew applause from the American Medical Association.

"The AMA concurs with MedPAC's recommendation that Congress stop the 2008 Medicare physician payment cut and update payments in line with medical practice cost increases, and thanks the commission for its thoughtful review," said AMA Board of Trustees Chair Cecil B. Wilson, MD. "Current payments are essentially the same as they were in 2001, and over the next eight years Medicare physician payments are slated to be cut about 40% while practice costs increase nearly 20%."

Lawmakers are free to ignore the advice that MedPAC gives them, but they rarely do. Commission reports often provide a starting point for payment reform negotiations and give the physician community a number to shoot for when it lobbies about Medicare rates.

Next year's update is not the only focus of MedPAC's work this year. In a separate special report also due March 1, the commission will offer long-term physician payment reforms for Congress to consider.

The report will outline two main pathways that lawmakers could take toward full-scale system reform. One would involve scrapping the formula that helps determine physician pay in favor of one that better aligns reimbursements with the costs of providing care. The other would keep the formula but expand its spending limits to all of Medicare.

Under the first MedPAC option, physicians no longer would be subject to expenditure caps under the payment system. Currently, the sustainable growth rate formula imposes annual spending limits and slashes rates for all doctors if the physician community as a whole exceeds the cap in a given year. Instead, Medicare could try to control spending growth through such reforms as linking payment to the quality of care, encouraging physicians to coordinate patient care better and showing doctors how many services they prescribe compared with their peers.

The second option would maintain the SGR mechanism that limits spending. But instead of applying on a national level, the limits could be adjusted geographically. This means that each individual cap on spending would apply to doctors only in a given area of the country, so physicians who do not incur much spending would not necessarily be punished for the actions of those who do.

After this phase of the reform was complete, the spending limits then would be applied to all of Medicare. This means that physicians, hospitals, nursing homes, home health agencies and others in areas where the volume of medical services is low could share in any savings from limiting expenditures in high-volume areas. It also would mean that all medical professionals would see cuts in areas where the formula has deemed spending too high.

A hot debate

The second pathway proposed by MedPAC, under which the SGR formula would be maintained and expanded, did not sit well with the AMA. The Association has argued strongly for a complete repeal of the payment formula.

"No amount of tinkering can fix what is broken beyond repair," Dr. Wilson said. "Instead of expanding the broken physician payment formula to other providers, physician payment updates should be determined using the same approach used for other providers -- based on the cost of providing care."

Saying that the two options under consideration were too abstract in their current form, MedPAC Chair Glenn Hackbarth took the unusual step of forgoing a vote to see which choice each commissioner thought was the way for Congress to go. But the question of whether to dispose of the formula and its expenditure caps sparked a hot debate at the January meeting of the commissioners, who appeared significantly divided on the issue.

Any positive impact that the formula has had in highlighting the need to control the volume of Medicare physician services has been more than outweighed by its detrimental aspects, said Nicholas Wolter, MD, a pulmonary and critical care physician who serves as CEO of the Billings (Mont.) Clinic. By punishing one sector of Medicare with spending limits, the sustainable growth rate actually has driven doctors to make up for the losses by boosting volume in other areas, he said.

"If there's anything that's had a track record of complete failure, I think the SGR would be near the top of the list," he said.

But until Medicare is able to implement a system that truly pays more for better care instead of simply rewarding low-quality and excessive care, the program needs to maintain a spending ceiling to prevent runaway growth, said Douglas Holtz-Eakin, PhD, former Congressional Budget Office director.

"If you take an expenditure target at face value, its goal is to constrain expenditures, and the SGR has done that," he said.

Some physician advocates expressed hope that the March reports would boost doctors' chances in convincing Congress that both short-term and long-term payment changes are needed.