Congress passes bills keeping physicians from Medicare pay cut, "red flags" rule

Doctors are spared a 25% reduction and the need to come up with identity theft protection plans intended originally for banks.

By Chris Silva — Posted Dec. 13, 2010

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Congress has voted to block a Medicare physician pay cut through 2011. In another closely watched physician issue, lawmakers exempted doctors from the so-called red flags rule on security of financial data.

On Dec. 9, the House passed a bill that prevents any Medicare physician payment cuts through 2011. The move followed by one day Senate approval of the bill, which is expected to be signed by President Obama.

Once the bill is signed, physicians no longer will face a 25% Medicare pay reduction scheduled to begin Jan. 1, 2011.

The cut was mandated under the sustainable growth rate formula, which now becomes the focus of organized medicine, Obama, lawmakers and others who seek to end a pattern of last-minute congressional overrides of negative pay updates. Since 2002, the formula, based on the economy and Medicare spending, has calculated continued declines in physician pay, which Congress then overrode. Congress has overridden those declines five times in 2010 alone.

Numerous surveys by the American Medical Association and others have found that physicians facing Medicare pay reductions said they were less likely to accept more patients in the program, or that they might drop Medicare altogether. Those surveys said seniors view Medicare physician pay cuts as a serious problem that requires swift congressional action.

"Stopping the steep 25% Medicare cut for one year was vital to preserve seniors' access to physician care in 2011," AMA President Cecil B. Wilson, MD, said after the House vote. "Many physicians made clear that this year's roller coaster ride, caused by five delays of this year's cut, forced them to make difficult practice changes like limiting the number of Medicare patients they could treat."

The delays included the 2010 overrides and a two-month patch passed in December 2009 that covered January and February 2010.

"The AMA will be working closely with congressional leadership in the new year to develop a long-term solution to this perennial Medicare problem for seniors and their physicians," Dr. Wilson said. "This one-year delay comes right as the oldest baby boomers reach age 65, adding urgency to the need for a long-term solution before this demographic tsunami swamps the Medicare program."

The current bill keeps Medicare physician pay at its present level, including the 2.2% increase that physicians received when Congress overrode an SGR-mandated pay cut in June.

Obama said he hopes to see a permanent fix of the Medicare payment system passed in 2011.

"For too long, we have confronted this reoccurring problem with temporary fixes and stopgap measures," Obama said after the Senate passed the one-year patch on Dec. 8. "It's time for a permanent solution that seniors and their doctors can depend on, and I look forward to working with Congress to address this matter once and for all in the coming year."

The bill passed by the Senate and House grew from a deal struck by four Senate leaders. Senate Finance Committee Chair Max Baucus (D, Mont.), ranking minority member Sen. Charles Grassley (R, Iowa), Senate Majority Leader Harry Reid (D, Nev.) and Senate Minority Leader Mitch McConnell (R, Ky.) took the lead in crafting the bill, coming up with a deal that allowed the legislation to go to the Senate.

The House took up that bill, rather than legislation introduced in November by a group led by Rep. John Dingell (D, Mich.) and other House Democrats. Dingell's bill, which included a 1% Medicare physician pay raise for 2011, was introduced as a placeholder in the event the House voted first. However, the Senate introduced legislation just before Thanksgiving for a one-month patch that avoided a 23% cut slated for Dec. 1, and the House quickly followed suit.

The latest delay in Medicare cuts is expected to cost $19.2 billion and would be paid for by expanding Internal Revenue Service recoveries under the national health system reform law. The law offers subsidies based on income to people who sign up for coverage through the health insurance exchanges spelled out by the legislation. If a person earns more than he or she projected that year, the IRS can collect a limited amount of the subsidies paid. The bipartisan agreement would raise that limit, increasing the subsidies the IRS can recover.

Meanwhile, a bill to exempt physicians and other professionals from the red flags rule passed the House on Dec. 6, following Senate passage four days earlier, and is headed to Obama's desk for his signature.

The red flags rule required any creditor who held financial data on clients to install identity theft detection and monitoring programs. The rule is the result of the Federal Trade Commission's interpretation of the Fair and Accurate Transactions Act of 2003, which was intended to tighten security of financial data held by banks and credit card companies.

On Nov. 1, 2008, the FTC said physicians were covered under the red flags rule because they bill people for services after they are provided, and because they allow payment plans. The AMA and others objected.

Under the Health Insurance Portability and Accountability Act, physicians are responsible for ensuring the confidentiality and security of patients' medical information. The AMA and others argued that the red flags rule, on top of HIPAA, was redundant, an unfunded mandate that would create unnecessary bureaucracy for practices while resulting in little, if any, public benefit.

On May 21, 2010, the AMA, the American Osteopathic Assn. and the Medical Society of the District of Columbia filed a federal lawsuit to prevent the FTC from holding physicians to the red flags rule. The AMA filed the lawsuit through the Litigation Center of the American Medical Association and the State Medical Societies.

As these battles were being fought, the FTC delayed enforcement of the red flags rule on physician practices five times. FTC Chair Jon Leibowitz told delegates at the AMA Annual Meeting on June 14: "We feel your pain on red flags, and we want to fix it. We agree with you that the red flags rule reaches too far."

Dr. Wilson said the FTC had defined creditors too broadly to include physicians and other professionals, who now would be exempt under the bill.

"The AMA is pleased that this legislation supports AMA's long-standing argument to the FTC that physicians are not creditors," he said. "This bill will help eliminate the current confusion about the rule's application to physicians."

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