Number, Complexity of Services Blamed for Medicare Fee Cuts

Overall physician payment under the Medicare program will drop by 5.1 percent, according to a proposed rule released by the federal Centers for Medicare and Medicaid Services (CMS) last month.

At the same time, payment for certain services—specifically, evaluation and management services—will be substantially increased, a change that could benefit psychiatrists who use these “E&M” codes for coordinating care of patients.

APA's Office of Healthcare Systems and Financing is studying the changes to the formula for paying for evaluation and management to determine their impact on psychiatrists. Updates will appear in future issues of Psychiatric News.

In a statement announcing the new fee schedule, CMS said it will pay roughly $61.5 billion to 875,000 physicians next year. The physician fee schedule specifies payment for thousands of health care procedures and services, ranging from simple office visits to complex surgery.

CMS is required to adjust the fee schedule up or down depending on how actual expenditures of the last completed fiscal year compare with a target rate, known as the sustainable growth rate (SGR). The SGR is based on medical inflation, projected growth in the domestic economy, projected growth in the number of beneficiaries in the Medicare fee-for-service program, and changes in law or regulation. If actual spending exceeds the SGR, then CMS must reduce the update and most reimbursement levels.

In its statement, CMS said the negative update is projected for 2007 because spending on physicians' services has been growing at a much faster rate than target spending. “Expenditures for physicians' services in 2005 increased 10 percent over 2004, even faster than had been previously projected, mainly due to an increase in the number and complexity of services furnished to Medicare beneficiaries, including more frequent and intensive office visits and rapid growth in the use of imaging techniques, laboratory services, and physician-administered drugs,” the agency stated.

The update formula would have imposed payment cuts every year beginning in 2002, except that Congress intervened and temporarily suspended the requirements in favor of updates it set legislatively through 2006.

But in passing these measures, Congress did not adjust the target, further increasing the gap between actual spending and the targets, according to CMS.

“We need to get out of the vicious circle of rapid growth in utilization and spending and falling real payment rates,” said CMS Administrator Mark McClellan, M.D., M.P.H. “Physician groups have been working hard to identify better ways to pay— ways that help them provide higher-quality care without increasing overall health care costs. We will continue to work with Congress and with physician groups to provide more efficient and higher quality care for beneficiaries without increasing Medicare spending.”

APA, the AMA, and other specialty medical groups have insisted that the SGR be scrapped and a new formula for paying physicians be devised (Psychiatric News, August 18).

Cecil Wilson, M.D., chair of the AMA's Board of Trustees, said in a statement that the new payment rule again highlights the need to fix the“ fatally flawed” physician payment system.

“Medicare has expanded the treatments it covers more than 90 times since 1999, yet under the current Medicare payment system physicians are penalized with lower payments per service the more care they provide,” he said. “In fact, Medicare currently reimburses physicians about the same in 2006 as it did in 2001. Without congressional intervention, Medicare physician payments will be slashed 37 percent over the next nine years, as practice costs increase 22 percent.”

At press time the fee schedule was expected to be published in the Federal Register on August 22. Comments are being accepted until october 10, and a final rule will be published later in the fall. The new payment rates and policies included in the final rule will be effective January 1, 2007. ▪