Medicare trustees' upbeat outlook relies on big pay cuts for doctors

The AMA says the new Part B projections reinforce the need for a permanent solution on physician pay.

By Chris Silva — Posted Aug. 16, 2010

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The Obama administration promoted the 2010 Medicare trustees report as evidence the health system reform law is helping shore up the program's finances. Critics said that outlook is based on unrealistic assumptions and misleading accounting.

The report was released Aug. 5, about three months later than usual to give actuaries more time to assess the projected impact of the reform statute on the program. The trustees said Medicare savings that are included in the overhaul will extend the insolvency date of Medicare's hospital trust fund to 2029, 12 years beyond the point that last year's report said Part A would run out of money.

Medicare Part B does not face insolvency because it is funded by a combination of general tax revenues and beneficiary premiums. Expenditures on outpatient care grew at an average annual rate of 8.3% during the past five years, exceeding gross domestic product growth by 4.2 percentage points annually, on average.

Projected annual spending growth for Part B is estimated to average only 5.3% during the next five years, about the same as the GDP growth rate, the report said. But this assumes deep physician pay cuts will take effect. Unless Congress steps in, physician rates are scheduled to decline 23% on Dec. 1, an additional 6.5% in January 2011 and 2.9% in 2012.

"The projected future growth rate reflects unrealistic reductions in physician payments required by the current law," the trustees wrote. "Legislative changes to the current statute regarding physician payments are nearly certain and could increase the projected Part B growth rates to about 8% through 2014."

The American Medical Association warned that the health of the Medicare program depends on Congress taking action to ensure adequate patient access to care.

"This report is just the latest warning bell for members of Congress who know the Medicare physician payment system is broken," said AMA Immediate Past President J. James Rohack, MD. "Congress can shore up physicians' confidence in Medicare and help preserve seniors' health care by abandoning the practice of passing stopgap measures that ultimately make the problem worse."

Dr. Rohack said, however, that the trustees' report highlights the fiscal benefit that came from removing physician-administered drugs from the calculation of the sustainable growth rate formula -- an action the AMA had long called for. Because of this change, fewer annual reductions in physician payment rates will be required to balance actual and target physician spending, the trustees said.

The reform factor

Medicare Part B spending now approximates 1.5% of the GDP, the report said. Last year's report projected that figure would increase to 4.5% by the end of the trustees' 75-year projection. With the new law, it is now projected to reach only 2.5% of GDP by the end of the long-term window.

Richard Foster, chief actuary at the Centers for Medicare & Medicaid Services, said long-term expenditures probably would exceed these projections. Preventing rate cuts to doctors would increase that estimate, as would a failure to realize long-term savings envisioned under reform.

For example, annual price updates for most nonphysician services under Part B will be adjusted downward each year by growth in economywide productivity. Evidence indicates, however, that Medicare participants cannot improve their productivity to the degree necessary, Foster said.

The law promotes new care models, such as patient-centered medical homes, accountable care organizations, payment bundling and pay-for-performance. Nevertheless, "without major changes in health care delivery systems, the prices paid by Medicare for health services are very likely to fall increasingly short of the costs of providing these services," he said.

Accounting questions

Health and Human Services Secretary Kathleen Sebelius, who helped introduce the report, said it shows the law will help Medicare's future. "It is clear that the Affordable Care Act is helping to strengthen the solvency of the Medicare trust fund and preserve this important program that millions of Americans rely on for their health care."

Some policy analysts agreed that key report findings were positive.

"The landscape for the future should be more favorable for finding savings," said Robert Greenstein, executive director of the Center on Budget and Policy Priorities, a liberal think tank in Washington, D.C. "This isn't to say that more doesn't need to be done. ... Nevertheless, this is a major improvement in Medicare financing."

Others were more pessimistic about the report's findings, citing the likelihood that projections for Part A and B would not be realized.

"We shouldn't confuse payment reductions in dysfunctional systems with anything like health care reform," said Gail Wilensky, PhD, senior fellow with Project HOPE and former director of the agency now known as CMS. "What we need is to reform the Medicare system so that we can remain focused ... on the significant pressures we're going to see on Parts B and D."

Republicans also dismissed claims that reform had significantly improved solvency for the hospital trust fund. They said the administration is planning to raid those savings -- reaped by cuts affecting seniors in private Medicare plans -- to pay for subsidized coverage for tens of millions of uninsured. "The administration's own actuary and [the Congressional Budget Office] have said over and over again that you can't 'double-count' the Medicare cuts by claiming they extend the life of the Medicare program and at the same time fund a new entitlement program," said Sen. Charles Grassley (R, Iowa).

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The physician pay effect

The 2010 report from Medicare trustees projects that spending on outpatient care actually will dip in 2011 before continuing on its upward trend. But that assumes physicians will see their pay cut by about 30% at the end of this year, something the program's caretakers say Congress is likely to prevent. Annual Part B spending is expected to exceed $350 billion within the decade even if the cuts go through.

Expenditures (in billions)
2010 $217.3 $2.9 $220.1
2011 $212.2 $3.0 $215.3
2012 $222.6 $3.3 $225.9
2013 $238.4 $3.6 $242.1
2014 $255.8 $4.0 $259.8
2015 $271.3 $4.4 $275.8
2016 $288.3 $4.9 $293.2
2017 $308.7 $5.4 $314.0
2018 $332.2 $5.8 $338.0
2019 $358.8 $6.3 $365.0

Source: 2010 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds (link)

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