APA Among Groups Asking for Medicare Payment Fix

APA and other medical associations have challenged the legal basis for the refusal by the Centers for Medicare and Medicaid Services (CMS) to ameliorate the impact of a cut of 5.4 percent in the Medicare physician payment rate for 2002.

At a press conference on May 13, the American Medical Association (AMA) released a legal analysis of issues related to the reimbursement formula conducted by Terry S. Coleman, J.D., former Health Care Financing Administration (HCFA) deputy administrator for the Bush administration and HCFA chief counsel for the Reagan administration. APA and 40 other specialty and health professional associations commissioned the analysis.

Administration officials contend that they have no leeway to modify the cuts unless the reimbursement formula is changed by legislation. In announcing the cuts last December, CMS Administrator Tom Scully said, “The law designing the physician update is incredibly prescriptive. The formula locks us in.”

APA and other medical associations supported a legislative fix to the cuts and other problems resulting from application of the formula proposed in the Medicare Physician Payment Fairness Act (HR 3351 and S 1707) late last year (Psychiatric News, December 7, 2001).

The bill would limit the cut to .9 percent for 2002 and require the Medicare Payment Advisory Committee (MedPAC) to conduct a study of the formula. The legislation is sponsored by 331 representatives and 74 senators, but it has not reached the floor of either chamber for a vote.

In his legal memorandum, Coleman argued that CMS has the authority to revise projection errors used in estimating the sustainable growth rates (SGR) in 1998 and 1999.

The SGR is set each year by considering four factors: the percentage increase in fees for all physicians’ services, the percentage change in the number of Medicare Part B enrollees, the percentage growth in real gross domestic product per capita, and the percentage change in expenditures for physicians’ services.

CMS miscalculated several factors in 1998 and 1999. For example, in 1999, the agency estimated that the number of Medicare Part B enrollees would fall 4.3 percent, but the number fell only 1.1 percent because enrollment in Medicare+Choice (the Medicare managed care option) was less than anticipated. The result of that faulty projection was that the formula failed to reflect the cost of providing care to a million Medicare beneficiaries through Medicare Part B.

CMS also miscalculated growth in the gross domestic product in 1998 and 1999. The result was an underestimate of allowed expenditures that, in turn, will have a long-term impact on the physician payment rate, if the estimates are not corrected.

The AMA estimates that these miscalculations have removed $20 billion from Medicare funding for physician services by artificially lowering spending targets.

Coleman also claims that CMS improperly included drug costs in its calculation to determine the amount Medicare spends for physician services. Although most drugs are not funded through Medicare, certain physician-administered drugs are reimbursable. Spending on these drugs increased about $550 million a year from 1996.

According to Coleman’s argument, by including the cost of these drugs, the cost of physician services was inflated artificially, which worked to drive down the payment rate. The AMA claims that if uncorrected, the projection errors and the inclusion of drug costs would slash reimbursement to health care professionals by an estimated $62 billion over the next 10 years.

In a letter dated March 21, Rep. Bill Thomas (R-Calif.), chair of the House Ways and Means Committee, and Rep. Nancy Johnson (R-Conn.), chair of the Ways and Means Health Subcommittee, also argued that CMS has the authority to correct previous errors. They noted the additional problem of using productivity measures based on the performance of the economy as a whole to predict changes in productivity for physicians.

Their letter concluded with the statement, “We believe that the cumulative effect of questionable assumptions and uncorrected errors greatly exacerbates the physician spending baseline. . . .”

Jay Cutler, J.D., director of APA’s Division of Government Relations, said, “APA joins with the AMA and other medical associations in urging the administration to take immediate action to fix the update formula and remove the excessive and inappropriate Medicare cuts on rates paid physicians.”

According to CMS, application of the current formula over the next five years would produce the following updates: -5.7 percent in 2003; -5.7 percent in 2004; -2.8 percent in 2005; and -0.1 percent in 2006.

Information about the legal challenge is posted on the Web at www.ama-assn.org/ama/pub/article/1751-6222.html. ▪