Medical Groups Explain Why Medicare Cuts Not Inevitable

APA and 85 other physician organizations suggested a series of administrative changes that federal health officials could implement to avert a scheduled cut in Medicare physician reimbursements.

The changes, detailed in an April 20 letter to Leslie Norwalk, acting administrator of the Centers for Medicare and Medicaid Services (CMS), suggested policy changes the agency could make to eliminate payment cuts driven by the sustainable growth rate (SGR) formula, which it uses to determine physician fees under Medicare.

A 10 percent reimbursement reduction is scheduled for the beginning of 2008, and Medicare trustees predict cuts of nearly 40 percent will be needed over the next eight years.

“These cuts are unsustainable, and they will make it impossible for most practices to make the kinds of investments in health information technology and quality initiatives that the Bush administration has championed,” the letter stated.

APA and other organizations, including the AMA, suggested that CMS use all of the funds that Congress placed in a special physician-fee reserve fund in 2006 to avert cuts in 2008. The fund was created by legislation that averted the 5 percent cut that was scheduled for 2007.

Tapping the $1.35 billion in the Physician Assistance and Quality Initiative Fund would be “a critical first step toward lessening the 10 percent reduction in the conversion factor for 2008,” the medical organizations said.

CMS officials also could apply the funds to physicians' and other health professionals' investments in information technology and quality measurement tools through an increase in the physician reimbursement.

The Medicare Payment Advisory Commission (MedPAC), which advises Congress on Medicare issues, recommended that CMS increase Medicare payment rates for physicians and other health professionals by 1.7 percent to reflect its forecast of practice-cost increases in 2008. In its March report to Congress, MedPAC recommended that administrators direct the $1.35 billion fund entirely toward the 1.7 percent increase in physician reimbursements.

Overhaul Inflation Index

Another administrative move advocated by APA and its allies is an overhaul of the inflation index in the SGR formula to remove the assumption of annual productivity increases, or increased efficiency by physicians through steps such as adoption of new technology. President Bush's Fiscal 2008 budget proposal would reduce the payment update for inpatient and outpatient hospital services, hospices, and ambulance services by 0.65 percent each year to offset physician productivity increases. The Medicare tool used to measure increases in practice costs, minus increases in productivity, predicts that physicians' efficiency will grow twice as fast in 2008.

“Surely the administration does not believe that physicians' and other health professionals' productivity is increasing at twice the rate of other health care providers,” the letter stated.

The physician groups urged administration officials to reduce the physician productivity factor to the same recommended for nonphysician Medicare providers.

Remove Part B Drugs From Calculations

Another change sought by APA would remove the cost of Part B drugs—medications that beneficiaries cannot self-administer—from the SGR calculations. This long-sought change retroactive to the 1996 SGR base year is needed, according to APA and its allies, because drug spending grows much more rapidly than spending on physician and professional services and is a significant factor in the pay cuts forecast over the next eight years.

The impact of the policy is highlighted by CMS data that found that Part B drugs were less than 4 percent of the SGR target and actual spending in 1996, but had more than doubled to 9 percent of SGR spending by 2005. By 2017, these costs are expected to consume nearly 20 percent of the target for Medicare spending on physician and other health professional services.

“Because CMS counts spending on drugs covered by Medicare Part B in its calculations of actual spending under the SGR, the difference between the SGR targets and actual spending has gotten wider and wider,” according to the letter.

The decision to include Part B drug spending as part of the SGR was an administrative CMS decision, and CMS has the authority to remove drug costs from those calculations retroactive to the SGR base year, according to the letter.

Coverage Determinations Cited

A final administrative change advocated by APA stems from a 1999, CMS reform that based Medicare coverage policy determinations on the best-available scientific evidence of services' effectiveness. Since then, CMS has issued many national coverage determinations, which have had a significant impact on spending growth but no impact on the SGR. Millions of dollars in additional spending each year under the SGR stems from CMS's policies that expanded coverage or reversed noncoverage decisions for a variety of conditions and tests. CMS, however, has rejected previous recommendations to estimate the cost of these benefit expansions and include them in the SGR's“ law and regulation” factor.

Whether CMS implements any of the steps described by the physician groups will determine whether physicians are able to adopt information technology and quality initiatives, according to the letter, as well as to continue to accept new Medicare patients during the coming influx of baby boomers to the program.

The letter is posted at<www.psych.org/members/download.cfm?file=1556>.▪