Medicare doctor pay patch sets up 32% cut for 2013

Washington -- The 10-month delay of cuts to Medicare physician payment rates leaves Congress in what some see as its toughest spot to date when it comes to preventing deep pay reductions.

Physician organizations and other health policy observers said lawmakers missed a major opportunity to pass a long-term solution to the broken Medicare sustainable growth rate formula. The pursuit of yet another short-term patch makes attaining a permanent fix to the SGR in 2012 significantly more difficult, with the price of a repeal going even higher above the $300 billion mark and the added pressures of competing for legislative attention in a presidential election year.

A payroll tax reduction extension package approved by Congress and signed into law on Feb. 22 by President Obama also freezes Medicare doctor pay rates for the rest of 2012. Medicare pay was set to decrease by 27.4% on March 1 after Congress had postponed the SGR cut for only two months in December 2011. But keeping rates stable only through the end of the year means that pay is scheduled to decrease by an estimated 32% in January 2013.

Physician organizations strongly criticized the temporary fix. Organized medicine made a concerted bid for Congress to break the cycle of payment patches by using funds projected to be saved from winding down the wars in Afghanistan and Iraq to eliminate the SGR formula, which has threatened reductions to Medicare rates since 2002. But lawmakers rejected that strategy, instead passing legislation that spends roughly $20 billion to postpone the cut and extend other Medicare pay provisions for only 10 months, while increasing the cost of a permanent solution by about $25 billion, said AMA President Peter W. Carmel, MD.

"We are deeply disappointed that Congress chose to just do another patch -- kicking the can, growing the problem and missing a clear opportunity to protect access to care for patients," Dr. Carmel said.

With Congress moving on to other legislative business in the meantime, it was unclear whether the unspent war funding tactic could be revisited -- and if so, whether Medicare physician pay provisions would be one of the priorities chosen to utilize that funding source. Use of the funds to fix the Medicare formula has support among Democrats and some Republicans, but others dismiss the idea as a budget gimmick.

The string of temporary patches to the SGR formula likely will continue, said Joseph Antos, PhD, the Wilson H. Taylor Scholar in Health Care and Retirement Policy for the American Enterprise Institute, a conservative think tank in Washington. He predicts that lawmakers will pass only a two-month pay patch in December, during a lame-duck session of Congress, because of the political challenges of enacting any major legislation during a presidential election year. Such a pay patch would delay cuts until March 1, 2013.

"Unfortunately, I don't see Congress taking up anything but true emergency legislation that absolutely must pass this year," Antos said.

In addition to addressing the continuing Medicare pay problem, the legislative agenda includes addressing expiring tax cuts first enacted by President George W. Bush. Lawmakers also have said they need to agree on legislation to soften the impact of trimming an additional $1.2 trillion from federal programs through the process known as sequestration. In July 2011, Congress agreed to those across-the-board cuts -- which also will affect Medicare pay starting in 2013 -- as a fallback plan in case lawmakers were unable to agree on a long-term federal deficit reduction measure.

All of these provisions would need to be addressed by Jan. 1. American College of Cardiology CEO Jack Lewin, MD, called the situation "a perfect storm," and he expressed disappointment that lawmakers did not seize the unprecedented opportunity to use the unspent war funds to eliminate a problem that has plagued doctors and policymakers for more than a decade.

"When will Congress stop using short-term, last-minute doc fixes?" Dr. Lewin asked. "The SGR deficit will be over $600 billion in five years. It's time to awaken to reality and accountability."

Hospitals, labs take funding hits

A congressional conference committee agreed on Feb. 16 to freeze 2012 Medicare rates during negotiations to extend payroll tax cuts and unemployment insurance to those who are out of work for long periods. The committee was created after a dispute between the House and Senate over how to pay for the longer-term priorities in December 2011.

The latest legislative package includes health offsets totaling $20.9 billion to pay for delaying the doctor pay cuts and continuing other Medicare pay extenders. Hospitals and clinical labs bore the brunt of these funding reductions. Republicans also targeted billions in health system reform law appropriations, including from a Dept. of Health and Human Services prevention fund, to pay for the package.

The House approved the measure on Feb. 17 by a 293-132 vote, and the Senate followed suit the same day with a 60-36 vote. But several lawmakers expressed reservations about individual items in the statute.

"It is not right to ask other providers, particularly safety-net providers serving a disproportionate share of low-income seniors and individuals with disabilities, to take cuts in their payments" to pay for other priorities in the bill, said Rep. Henry Waxman (D, Calif.), who nevertheless voted in favor of passage. "And it certainly is not right to reduce our commitment to prevention by robbing the prevention fund of critical dollars that could help us keep people healthy instead of paying for them when they are sick."

Rep. Mike Fitzpatrick (R, Pa.) also voted yes, but he wants his colleagues to work toward eliminating the SGR. He recounted how a cardiologist spoke to him about Congress' reliance on short-term patches, which he said provide no stability or predictability to physicians. "He told me that every time a short-term extension comes up for a vote, he is faced with the possibility of having to lay off employees and reducing his practice in the face of potential cuts."

Other Medicare pay provisions extended

The new legislation also extends several smaller Medicare payment provisions that were set to expire after Feb. 29. The bill maintains, through 2012, pay increases to physicians practicing in rural and other low-cost areas, exceptions to coverage caps on outpatient therapy services, enhanced pay rates to community hospitals and increased pay for ambulance services.

But the law also allowed some previously popular provisions to expire. Hospital geographic reclassifications, pay increases to certain facilities that had ended on Dec. 1, 2011, were extended only through March 31, 2012.

Another payment add-on for mental health services also was not extended. The American Psychiatric Assn. was disappointed that Congress did not renew the add-on, but it never was intended to be a permanent solution for the undervaluation of such services, said Nicholas M. Meyers, director of government relations for the association. "We remain grateful for congressional support extending the add-on several times in prior years," he said.

The APA now will work through the regular Medicare coding review process to secure relative rate adjustments for mental health services.