Medicare crisis: Finding a solution to pending Medicare cut

May 1, 2008

Efforts are underway in Washington to find a solution to the crisis that threatens to impose a 10.6 percent Medicare cut on physicians beginning July 1, and then 15.6 percent in 2009.

Key Points

Efforts are under way in Washington to find a solution to the crisis that threatens to impose a 10.6 percent Medicare cut on physicians beginning July 1, and then 15.6 percent in 2009.

Dermatologists breathed a sigh of relief late last December when legislation was passed on the final day of the congressional session preventing physicians from facing a 10.1 percent cut for the first half of this year. Instead, a 0.5 percent update was provided through June 30, 2008.

Physicians were facing the cut due to the Sustainable Growth Rate (SGR) formula, which the American Academy of Dermatology and other healthcare groups have urged be replaced with a system that would reimburse physicians based on the true costs of furnishing healthcare services to beneficiaries.

Whether Congress can find a lasting solution to the Medicare reimbursement difficulties or must once again take patchwork emergency action remains to be seen. Election-year politics may make it especially difficult to come up with substantive changes to Medicare, such as a permanent fix to the SGR system used to calculate annual payment updates, which some estimates place at nearly $300 billion.

Congress has been forced to annually step in and prevent scheduled reductions each year for the past five-and-a-half years because of the SGR.

For the past several years, AAD and other medical organizations have urged Congress to replace the SGR system, and the Medicare Payment Advisory Commission (MedPAC) has also recommended reform. However, lawmakers have been unable to find the billions of dollars needed to make that happen.

"The point is that physicians are suffering," one healthcare lobbyist says. "They shouldn't be sustaining repeated cuts like this. Every other provider group, like hospitals or nursing homes, is paid according to an inflation-adjusted index. Doctors should be paid that way as well."

Save Medicare Act

Early in April, Senate Finance Committee Chairman Max Baucus (D-Mont.) Indicated he will send a bill addressing the scheduled cuts and other Medicare issues straight to the Senate floor rather than running it through his committee. His approach, apparently, is more comprehensive than legislation introduced in March by Sen. Debbie Stabenow (D-Mich.) - the Save Medicare Act of 2008.

The American Medical Association has been supporting that measure, which would continue the 0.5 percent pay update approved through June, and then provide a 1.8 percent increase for 2009.

The problem, however, is that the Stabenow bill does not provide a funding mechanism to cover the cost of the increase, as is required by law. As a result, physicians would simply be faced with a large reduction in 2010. The Stabenow bill would extend the Physician Quality Reporting Initiative through 2010, and could provide a platform for bonus payments to physicians who comply.

Sen. Baucus has indicated that the legislation should focus on Medicare's deteriorating long-term fiscal condition, help beneficiaries afford program premiums and out-of-pocket costs, and be fiscally responsible. Thus, some knowledgeable observers caution that his measure could become too complicated and unwieldy to win approval in this political year.

The 2008 Medicare trustees report issued in early spring warns that Part A, which covers hospital, home health, skilled nursing and other facilities, has enough dedicated funding to cover only 94 percent of its costs this year, and the trust fund that supports it will run out of money by 2019.

Part B, which covers physician services, is funded through general revenue and premiums, and as spending increases, more revenue will be needed. Further, the trustees acknowledged that their projections are unrealistically low, because Congress will probably not let projected physician reimbursement cuts be imposed.