Physician pay cuts no solution to Medicare Part B problems

The Medicare trustees report released late last month paints a troubling picture of Medicare Part B's financial outlook. Under current law, spending on physician and other outpatient services would increase an average of 6.6% yearly over the next decade -- well above the 4.8% average annual projected growth in the U.S. economy.

But the program's caretakers believe the fiscal reality will be even worse.

Current law estimates include nine years of large cuts in physicians' Medicare payments. The trustees predict that Congress will prevent those reductions from ever occurring. But what would be good news for doctors would be bad news for Part B financing, the report notes.

Freezing physician payment rates each year for nearly a decade would cause the Part B growth rate to average 8.5% annually, according to a Centers for Medicare & Medicaid Services analysis commissioned by the trustees. Giving physicians updates in line with increases in the cost of providing care would boost the rate to a yearly average of 9.3%.

The trustees don't weigh in on whether congressional action along these lines to stop the projected reimbursement cuts is a good or bad idea. Because it is funded by premiums and general tax revenues, Part B can't go "bankrupt" in the way Medicare's hospital trust fund can. However, the report notes, any step to minimize or reverse physician payment reductions would result in bigger premium increases for Medicare beneficiaries and a greater strain on the nation's work force and economy.

So is allowing these drastic payment cuts part of the solution to Medicare's financial woes? Absolutely not. Beneficiaries and the physicians who serve them deserve better.

Next year's 9.9% cut and the roughly 5% annual reductions for eight years thereafter would undermine the whole purpose of the program -- to give seniors and people with disabilities timely access to much-needed medical care.

Medicare payment is projected to be slashed a total of 41% over the next nine years, while physicians' cost of providing care would jump 20%. Many doctors would be forced to make the painful decision to stop taking new Medicare patients. Meanwhile, they would find themselves unable to invest in the health information technology, such as electronic medical records, that would improve care and lower program costs.

The timing hardly could be worse. In just three years, the leading edge of the baby boom generation becomes eligible for Medicare. Access to physicians would be jeopardized just when the need for care is expected to grow.

To stop the impending crisis, the American Medical Association is calling for a two-pronged approach to Part B's financial problems. The first step is for Congress to stop the expected pay cuts and replace the flawed reimbursement formula with a system that links payment changes with increases in the cost of providing care -- as opposed to an economic growth standard that has nothing to do with practice costs. Other Medicare participants are subject to such stable payment policies, and doctors need similar predictability, the AMA points out in a letter to Congress.

Lawmakers can take a concrete step now to strengthen the Medicare program by leveling the playing field between Medicare managed care payments and spending in the traditional program. Health plans are paid on average 12% more than Medicare spends on fee-for-service patients. Equalizing payments would free up $65 billion over five years.

The second step is for lawmakers to start working toward creative long-term reforms for the entire program.

For the second consecutive year, the trustees report has found that total Medicare spending that comes out of general revenues will exceed 45% in the next six years. This triggered a funding warning that Congress built into Medicare law. The alarm system requires President Bush to propose legislation to respond to the problem in early February next year and Congress to consider his proposal on an expedited basis.

The nation's leaders should not wait until then to stop the meltdown in Medicare physician payment that endangers beneficiaries' access to care. They should act now. Then they should embrace their responsibilities triggered by the funding warning to develop a thoughtful plan for innovative long-term reform for Medicare as a whole.