Medicare Fee Reduction Blamed on Faulty Formula

Overall physician payment under the Medicare program will be reduced by 4.3 percent in 2006, according to a proposed final rule released last month by the federal Centers for Medicare and Medicaid Services (CMS).

The effect of the fee schedule change on psychiatrists is expected to be similar, according to Nicholas Meyers, director of APA's Department of Government Relations.

CMS says it expects to pay approximately $56.5 billion to 875,000 physicians and other health care professionals in 2006. The physician fee schedule specifies payment rates to physicians and other providers for more than 7,000 health care services and procedures, ranging from simple office visits to complex surgery. CMS is required to adjust the fee schedule up or down annually depending on how actual expenditures compare with a target rate, called the sustainable growth rate (SGR).

The SGR, in turn, is calculated based on medical inflation, projected growth in the domestic economy, projected growth in the number of beneficiaries in fee-for-service Medicare, and changes in law or regulation.

If actual spending exceeds the SGR, as it did in the past several years, then the law requires CMS to reduce the update factor and thus most reimbursement levels.

The proposed fee schedule change, with details of the methodology for calculating the SGR, was published in the August 8, Federal Register. CMS will accept comments on the proposals until September 30 and publish a final rule later this year.

In announcing the fee reduction, CMS Administrator Mark McClellan, M.D., Ph.D., said that “more effective” ways to pay physicians are necessary, and he cited the government's move toward pay for performance, the concept of paying physicians for adherence to quality measures.

Costs Cannot Rise

“CMS is working with members of Congress, physician organizations, and other health care stakeholders on ways to improve physician payment without adding to overall Medicare costs, if at all possible,” McClellan said. “These collaborations build on Medicare's performance-based payment demonstrations, value-based payment reforms implemented in the private sector, and especially promising measures and reform ideas from leading physician organizations.”

But APA, the AMA, and other specialty groups have said that whether pay-for-performance can work depends on replacement of the SGR, which has been the focus of vehement criticism by physician groups.

Since pay-for-performance would likely increase the volume of some services, the payment formula would then work to penalize physicians (Psychiatric News, March 18).

Bills Aim to Prevent Cuts

“This fee reduction for 2006 is part of an ongoing problem with the update formula, especially the SGR,” Meyers told Psychiatric News. “APA, the AMA, and all of the specialties have been working diligently to get it fixed.”

He said APA and these other groups are backing legislation by Sen. Deborah Stabenow (D-Mich.) and Rep. Benjamin Cardin (D-Md.) to reverse payment cuts and reform the payment formula. The bill, known as the Preserving Patient Access to Physicians Act of 2005 (S 1081), would stop payment cuts in 2006 and 2007 and provide physicians with positive payment updates of 2.7 percent and 2.6 percent, respectively, for those years.

The House version of the bill, introduced by Cardin, would also reverse the payment cuts, but would replace the SGR component with a new formula that supporters believe would more accurately reflect changes in practice costs.

The AMA is also supporting a bill introduced by Rep. Nancy Johnson (D-Conn.) that couples replacement of the SGR with a phase-in of pay-for-performance.

In a press conference announcing the introduction of the Johnson bill, AMA Trustee John Armstrong, M.D., hailed Johnson's effort to reform the payment formula.

“The AMA is staunchly committed to helping physicians improve the quality of care we give our patients, and we have developed quality initiatives and performance measures that are now in use in Medicare pay-for-performance demonstration projects,” Armstrong said.“ We're committed to the highest quality care, but to make further quality improvements, Medicare payments must keep up with the costs of providing that care.

“Without congressional intervention, Medicare payments to physicians will be cut dramatically—further widening the gap between payments and costs—and forcing physicians to make difficult practice decisions.”

Armstrong also said that the AMA “is so concerned about these sharp cuts that we went to physicians and asked them what changes they would have to make in their practice if Medicare payments are cut by 5 percent in 2006.

“Thirty-eight percent of physicians told us exactly what we feared: we'll be forced to decrease the number of new Medicare patients we accept into our practices. These changes would be just the tip of the iceberg, with the majority of the cuts yet to come in the five years following 2006.”

The proposed final Medicare payment rule is posted at<http://a257.g.akamaitech.net/7/257/2422/01jan20051800/edocket.access.gpo.gov/2005/05-15370.htm>.▪