Latest Medicare projections renew alarm on long-term sustainability

Washington -- Medicare is facing a long-term financial meltdown, but health policy experts said Congress is not likely in this election year to take the broad actions needed to keep the program sustainable.

Both the physician and hospital portions of the program are in trouble, according to the 2008 Medicare trustees report, released late last month. Part B, of which spending on physician services constitutes about 30%, does not face insolvency because it automatically is funded by general tax revenues and beneficiary premiums.

But it does face rapid growth and will consume an ever-larger portion of the nation's economy, the trustees said. The report predicts that Part B spending will climb from $187 billion this year to $325 billion by 2017, driven in part by the first wave of retiring baby boomers in 2010.

The trustees report projects that Medicare Part B will increase by an average of 6.2% through 2017. This estimate assumes that scheduled physician pay cuts of about 40% over the next nine years will happen. But the trustees expect Congress again to prevent the reductions from occurring. The first, a 10.6% cut, would take effect July 1.

If lawmakers use the same legislative devices to prevent the cuts that they have since 2003, this would add to program spending. Part B expenditures would grow by an annual average of 8%, much faster than the 4.8% growth expected in the U.S. economy, as measured by the gross domestic product.

But physician organizations warn against cuts in doctors' Medicare payments. "Trying to save Medicare money by slashing physician payments will ruin the physician foundation of Medicare for current and future generations of seniors," said Edward L. Langston, MD, chair of the American Medical Association Board of Trustees.

An AMA survey found that 60% of physicians say this year's cut alone would force them to limit the number of new Medicare patients they can treat, Dr. Langston noted. "Couple this fact with a physician shortage and the huge influx of baby boomers soon to enter Medicare, and the outlook for Medicare patients' access to care is grim."

The AMA and other physician organizations support replacing the sustainable growth rate formula driving the Medicare physician pay cuts with a system that reflects the cost increases inherent in practicing medicine.

One of Medicare's biggest financial problems is that the $326 billion trust fund supporting Medicare Part A -- which covers hospital, home health, skilled nursing and other facilities -- will be wiped out by 2019, trustees project. That downward spiral begins this year, when Part A will have only enough dedicated tax revenues to cover 94% of its spending. The trustees said Congress could bring Part A into balance for the next 75 years immediately in one or a combination of two ways: a 122% increase in payroll taxes for the program, from 2.9% to 6.4%, or a 51% reduction in program spending.

Procrastinating only will make Medicare reform more painful, said Joseph Antos, PhD, a health care scholar at the American Enterprise Institute, a conservative think tank. "We're running out of time, and the kinds of changes that appear to be necessary are now getting to be more and more extreme simply because there isn't as much time to ease them in."

Possible Medicare reform

Health policy experts said Congress must consider a wide range of changes to bring Medicare into balance. Options include raising eligibility to an age older than 65, increasing beneficiary contributions, adjusting or limiting benefits, turning fee-for-service payment into a system based more on pay-for-performance, providing better consumer price and quality information, and focusing greater scrutiny of the value of new medical technology.

Dr. Antos predicted that hospital and physician pay cuts are an inevitable part of the Medicare reforms Congress eventually will enact, in part because they're simpler to legislate. "It seems clear to me that, except for this year, we're going to see very sizeable payment rate reductions in Part A and in Part B."

If Congress can find additional funding and adopt a wide variety of reforms, it could avoid hitting any single part of Medicare too hard, said Robert Berenson, MD, a senior fellow at the Urban Institute, a research organization, and former Centers for Medicare & Medicaid Services official in charge of Medicare payment policy. "If everything is on the table, I don't think drastic changes need to take place."

Increasing taxes to raise the funds necessary to cover additional Medicare spending would have consequences, said Paul Ginsburg, PhD, president of the Center for Studying Health System Change. "Higher revenues can be part of the solution, but there are limits as to how much additional revenue the federal government can contribute without raising taxes to an extent where it starts harming the economy."

The AMA supports a variety of Medicare reforms, including placing greater emphasis on chronic care management, preventive care and comparative effectiveness research, and giving more help to physicians to develop clinical practice guidelines to improve decision-making.

None of the experts interviewed was optimistic that Congress quickly would tackle major changes that could drastically reduce Medicare spending. Republicans generally seek to limit growth in Medicare and other entitlement spending, while Democrats are often suspicious of any ideas that could be perceived as reducing benefits.

President Bush called for cutting Medicare spending by $12.2 billion in his fiscal 2009 budget plan. Among the proposed reductions were scaling back inpatient hospital care by $4 billion and cutting billions more from other hospitals, home health care, skilled nursing facilities and hospice care.

Democrats have reacted coldly to the proposal and instead have targeted private Medicare plans for cuts, a move opposed by many Republicans. The federal government is expected to pay Medicare Advantage plans an average of 13% per beneficiary more than it spends on fee-for-service plans in 2008, according to the Medicare Payment Advisory Commission.

Dr. Berenson said Democrats and Republicans will have to compromise to get something done. "Both sides, to some extent, haven't gotten serious about the need to control Medicare spending. We'll see if under a new president, that changes."

Dr. Ginsburg said cutting hospital or physician pay or raising taxes won't address the key problems Medicare is facing. But more potentially effective changes, such as shifting Medicare pay from a service-based system to more of an outcomes-based one, will take a long time. "These things are unpleasant to do. They don't get any points, and they tend to be done in a time of crisis."