Doubts, talks about Medicare reimbursement formula fix continue

August 1, 2010

While dermatologists and other physicians who serve Medicare patients have been given a reprieve until Nov. 30 from the 21.3 percent payment cut that had gone into effect in June - and were also given a 2.2 percent increase - there is more bad news to come, unless Congress gets rid of the current mechanism for setting rates.

Key Points

While dermatologists and other physicians who serve Medicare patients have been given a reprieve until Nov. 30 from the 21.3 percent payment cut that had gone into effect in June - and were also given a 2.2 percent increase - there is more bad news to come, unless Congress gets rid of the current mechanism for setting rates.

"In December, the Medicare physician pay cut will be a whopping 23 percent, increasing to nearly 30 percent in January," said Cecil B. Wilson, M.D., president of the American Medical Association (AMA), after Congress passed the six-month reprieve bill. "Congress is playing a dangerous game of Russian roulette with seniors' healthcare. Sick patients can't wait. Congress must replace the broken payment system before the damage is done and cannot be reversed."

The American Academy of Dermatology Association (AADA) says it continues to believe the only solution is complete reform of the Medicare patient system and repeal of the "flawed" sustainable growth rate (SGR) formula.

The AADA went on to point out that the payment issue, as well as many other spending programs, are caught up in election-year politics, "with Republicans and many moderate Democrats hesitant to take votes that might increase spending or debt levels."

However, the AADA said it would continue to urge Congress "to set politics aside and focus on the importance of preserving the Medicare program and seniors' access to quality healthcare."

According to the Medicare Payment Advisory Commission (Medpac) analysis of the CMS estimate, the 2011 update of a 6.1 percent reduction, added to the cumulative impact of cuts that have been replaced with temporary increases by Congress each year since 2007, would result in a reduction in payment rates of 26.1 percent for 2011.

"We find that - absent a change in law - the combined effect of the expired increases and the 2011 update is very unlikely to differ substantially from -26.1 percent," Medpac wrote in a report to Congress in June. "The temporary increases - by far, the largest factor influencing the payment reduction - were specified in law. When they expire, payment rates go down by an amount that is not subject to change."

Medpac says the SGR update for 2011 could change when CMS implements its update in January, but only by a small amount.

"According to the formula," Medpac explains, "the update is the projected change in input prices for physician services, adjusted by a factor to align spending with a target. While CMS's estimate of a 0.1 percent change in input prices may change, the agency's estimate of an update adjustment of -6.2 percent is the dominant factor."

Medpac stressed in its report that it is not satisfied with the current physician payment update mechanism, noting that the formula does not provide incentives for individual physicians to control volume growth, and that it is inequitable to those physicians who do not increase volume unnecessarily. In fact, Medpac reminded Congress it had suggested ways to improve the system in a report in 2007.

SGR saga

The AADA, the AMA and other specialty and subspecialty groups have lobbied Congress for several years to change the SGR, and that effort has intensified as annual updates have imposed increasingly larger fee cuts in order to meet the requirements of the law that created the formula.

However, instead of reforming the SGR - and always because of the cost of doing so - Congress has opted to pass specific legislation annually to prevent negative updates, resulting in a growing gap between actual spending and the target set by law.

Then, Congress instituted a new method that began with the 2007 update, with legislation prescribing temporary increases. When the increases expire, updates are calculated as if the increases had never been applied.

However, had Congress not overridden the formula with those increases, the cumulative change in payments would have been reductions totaling 20.1 percent, rather than the total increases of 1.6 percent.

Now, the cost of reforming the formula to make it more fair is massive - so massive that lawmakers avoided the issue altogether when it passed healthcare reform legislation, after a protracted fight over its cost, earlier this year.

Will there be a permanent fix before January, when next year's cuts are set to take effect? Don't bet on it happening before the mid-term elections in November, if at all.

Bob Gatty, former congressional aide, covers Washington for businesses specializing in healthcare and related issues. Contact him at bob@gattyedits.com
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