Advisory panel proposes Medicare physician pay cuts

Draft MedPAC recommendations suggest reducing payments to specialists to stabilize rates for primary care.

By Charles Fiegl — Posted Sept. 26, 2011

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The panel that gives advice to lawmakers on Medicare pay rates has proposed significant reductions in some physician payments as one way to avoid deep across-the-board cuts required by law.

The Medicare Payment Advisory Commission has drafted recommendations to Congress that would block a 29.5% pay cut scheduled for 2012 and future across-the-board Medicare rate reductions, but the plan would pay for the changes by lowering rates for nonprimary care services. Supporters of the proposal said it could provide more stability to future payments under the Medicare program. But detractors warned that the concept would split the physician community and pit primary care physicians against specialists.

MedPAC policy analysts explained the proposal during a Sept. 15 meeting. Recommendations would set two fee schedules -- one for primary care services and another for all other services. Payment rates for primary care would remain flat over 10 years, while payments for nonprimary care services would decline 5.9% a year for three years and then remain flat.

The 15-member commission is scheduled to vote on the proposal in October. If approved, the nonbinding recommendations would be delivered to lawmakers.

Total annual Medicare payments to physicians would rise from $60 billion in the first year of the decade to $120 billion in the 10th year. However, the conversion factor used for the primary care fee schedule would be about 20% higher than the conversion factor used to calculate final rates for all other services.

Since 2001, MedPAC has recommended a repeal of the sustainable growth rate formula used to calculate Medicare pay, said Glenn Hackbarth, the commission's chair. Congress did not act on the advice that year, and physician pay was cut by 5.4% in 2002. The SGR has continued to mandate across-the-board reductions in Medicare rates for each year since then, but Congress has used temporary overrides either to keep payments flat or provide modest pay increases.

Eliminating the SGR would be costly. Congress has not found a way to offset the roughly $300 billion needed to stave off future cuts and keep pay level over a decade. Some observers fear that Congress could use Medicare program savings -- such as those realized by bundling payments or eliminating program waste -- for federal budget deficit reduction instead of investing in a new payment system, Hackbarth said.

Cutting payment rates to health professionals is not ideal policy, he said, but MedPAC has drafted recommendations involving targeted pay cuts to overhaul the system for all physicians. "It is something we think is worth considering in the context of achieving the very important goal of repealing the SGR system."

But the plan of using focused physician cuts to pay for the elimination of the SGR ran into strong opposition from the American Medical Association and several other physician organizations. The proposal represents a "misguided scheme" that is inconsistent with MedPAC's historical position opposing doctor pay cuts because they threaten access to care for patients, said American Medical Association President Peter W. Carmel, MD.

"Medicare payment updates since 2001 have not kept up with the cost of running a medical practice, leaving a 20% gap between reimbursement rates and practice expenses," Dr. Carmel said. "Further drastic cuts pose a very real risk to physicians' ability to retain staff, care for Medicare patients, and make the investments needed to modernize their practices and participate in care delivery models intended to improve quality while reducing costs in the Medicare system."

Total payments to physicians would continue to go up under the proposal, said internist Robert Berenson, MD, MedPAC's vice chair and a fellow with the Urban Institute, a think tank in Washington. He strongly supported the proposed package of recommendations, which also assumes certain drug benefit and postacute care savings and a 2% annual increase in patient revenue.

A shortage of primary care physicians is an imminent threat that will get worse as the current generation of practitioners retires and the Medicare population grows, Dr. Berenson said. MedPAC studies show that 83% of primary care physicians accept new Medicare patients, while 95% of specialists say they have continued to see new beneficiaries.

He cited Urban Institute studies showing that specialists earned far more than internists and family physicians. The pay gap has led many physicians to choose specialties over primary care.

"I think this is a moderate middle ground between completely unacceptable 30% cuts from under the SGR and continuing a zero or 1% increase, which would be dead on arrival if we thought we were going to have any impact on what Congress was going to do," Dr. Berenson said.

Others on the panel disagreed. The proposal is not a fix for Medicare payment problems in primary care, said Ronald Castellanos, MD, a commissioner and urologist from Fort Myers, Fla. He said a two-tiered fee schedule system probably would have unintended consequences. For instance, the psychiatry specialty is not considered primary care, but psychiatrists manage a vulnerable and complex patient population.

"It is going to divide the medical community at a time when we really need to come together, work together as a team rather than in separate silos," Dr. Castellanos said.

Primary care physicians recently have seen increases in their Medicare payments while specialists have sustained cuts, said Alex Valadka, MD, a neurosurgeon from Austin, Texas, who is a spokesman for the Alliance of Specialty Medicine. For instance, the health system reform law provided 10% bonuses to primary care doctors. At the same time, Medicare fee schedule changes have led to cardiologists, radiologists and others undergoing decreases in pay for some of the complex services they provide.

Dr. Valadka said the SGR is a problem that affects all physicians, but that the MedPAC recommendations favor some doctors while shortchanging others.

"We're all in this together," he said.

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Possible SGR overhaul

Glenn Hackbarth, chair of the Medicare Payment Advisory Commission, has drafted four recommendations to Congress for eliminating the sustainable growth rate system used to calculate Medicare payments. The commission could approve the recommendations during its next meeting in October.

  • Repeal the SGR system and replace it with 10 years of statutory fee schedule updates. Primary care fees would be frozen for the decade. All other services would receive annual pay reductions of 5.9% for three years, followed by a freeze for the remaining seven.
  • Regularly collect data, including service volume and work time, to establish more accurate work and practice expense values for services. Data should be compiled from more efficient practices rather than from a sample of all practices.
  • Use the data to identify overpriced physician services and reduce their relative value units accordingly. These reductions should be budget neutral within the fee schedule.
  • Increase the shared savings opportunities for physicians and other health professionals who join or lead accountable care organizations in which they accept part of the financial risk.

Source: MedPAC, Sept. 15

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Health care spending slowdown

Recent economic conditions have led health care spending growth to slow to historic lows. The rate of change in all national health spending from 2009 to 2010 was the lowest it has been since the federal government began tracking health care dollars in 1965.

Health sector One-year growth rate
Average annual growth rate
Medicare 4.5% 8.7%
Medicaid 7.2% 6.7%
Private 2.6% 5.7%
Out-of-pocket 1.8% 4.3%
All 3.9% 6.3%

Source: "Context for Medicare Payment Policy," MedPAC, Sept. 15 (link)

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