Unbalanced budget: Medicare reimbursement cut looms in July

April 1, 2008

The federal budget for FY 2009, one that provides for $3.1 trillion in federal funding and includes overall Medicare reductions of $196 billion over five years, says about the problem that is the key to continuing Medicare physician reimbursement cuts – the Sustainable Growth Rate (SRG) formula.

Key Points

Washington -The federal budget for FY 2009 provides for $3.1 trillion in federal funding and includes overall Medicare reductions of $196 billion over five years.

However, it ignores the problem that is the key to continuing Medicare physician reimbursement cuts - the Sustainable Growth Rate (SRG) formula.

In addition, when the Bush administration proposed legislation later in the month to slow Medicare spending, which it says is on a "unsustainable" path, one of the strategies proposed was wider adoption of electronic medical records (EMR).

Meanwhile, in the midst of a heated political campaign - one in which healthcare is a major issue - Congress must act to extend a temporary 0.5 percent Medicare pay raise that was enacted late last year for the first six months of 2008.

If action is not taken, physician Medicare reimbursement will be reduced by 10.6 percent beginning July 1 through the rest of 2008, and then by another 5 percent next year.

Congressional opposition

The administration's Medicare budget was met with substantial disdain on Capitol Hill, where Sen. Max Baucus (D-Mont.), chairman of the Senate Finance Committee, declared it "dead on arrival with me and most of the Congress."

Under the budget plan, hospitals would face three years of pay freezes followed by annual pay cuts of 0.65 percent - a move that was criticized by American Hospital Association President and CEO Rich Umbdenstock, who says, "At a time when physicians are in short supply, this budget calls for cuts to teaching hospitals that prepare tomorrow's physicians.

"At a time when our economy is faltering, this budget cuts hospitals serving some of America's poorest patients."

Rep. John Dingell (D-Mich.), chairman of the House Energy and Commerce Committee, says the administration's plan would "result in more state budget shortfalls, more uninsured Americans and an even more severe national healthcare crisis."

President Bush took criticism even from his own party.

"One troubling area (of the budget) is physician payments," says Sen. Charles Grassley (R-Iowa), ranking GOP member of the Senate Finance Committee.

"The ... SGR formula is still fundamentally flawed," he says.

The SGR is a complex mechanism that consists of expenditure targets, a growth rate that considers inflation and other factors and annual adjustments to payment rates designed to bring spending in line with expenditure targets over time.

There has been a long battle to reform that formula, which left in place will reduce fees by 4 percent to 5 percent annually for at least the next several years, according to the Congressional Budget Office.

The American Academy of Dermatology, the American Medical Association and other specialty groups have long sought this reform.

Sen. Grassley warned that if Congress fails to act by June, physicians will face severe payment cuts, "and without further action, Medicare payments to physicians will plummet in the next several years."

As a result, Sen. Grassley says, access to healthcare could be threatened for patients if physicians decline to participate in Medicare or accept new Medicare patients.

"While the president's budget does not offer any ideas for addressing the physician payment dilemma, it is undoubtedly one of the biggest challenges we face," Sen. Grassley tells Dermatology Times.

The GOP senator urges reform of the way Medicare pays its providers, saying that linking reimbursement to quality of care "is one way to make Medicare a better purchaser of healthcare services."

In mid-February, Health and Human Services (HHS) Secretary Michael O. Leavitt warned Congress that Medicare "is on an unsustainable path," driven by projected growth in costs and increases in the beneficiary population.

The warning was triggered by the Medicare Modernization Act of 2003, which requires the president to submit a plan to reduce Medicare spending if, for two consecutive years, 45 percent of the program's funding was projected to come from general tax revenue rather than dedicated payroll taxes or premiums, within six years.

Medicare trustees projected in 2006 and 2007 that this would occur.

The measure includes proposals that HHS says would reduce Medicare spending by increasing provider efficiency and encourage beneficiaries to be "wise" healthcare consumers.

Key elements

Key elements of the bill are:

The bill also calls for medical liability reform and would impose higher premium charges for drug coverage on beneficiaries with annual incomes over $82,000 or $164,000 for couples.

Mr. Leavitt says the proposal would reduce government spending by $3.2 billion over five years.

"The whole concept of the Medicare trigger is arbitrary and little more than a scare tactic to promote cuts to the most successful social program of our time," Rep. Dingell says.

"The president's idea for 'improving' the program is to stick the beneficiaries with more of the bill," he says.

The provision to provide incentives to deliver high-quality care would require HHS to publish reports on physicians, hospitals and health plans by 2013 for 50 percent of treatment paid for by Medicare.

A key to supporting pay-for-performance will be widespread EMR implementation, according to James King, M.D., president of the American Academy of Family Physicians (AAFP), who says small group practices need financial assistance so they can afford the necessary systems.

AAFP estimates that 50 percent of its members will have such a system by the end of this year, but most of the rest cannot afford them.

Meanwhile, Mr. Leavitt says he would like to be able to use Medicare claims data to help grade Medicare providers, but conflicting court decisions in Florida and the District of Columbia make that difficult.

However, he wrote in a Feb. 22 blog on the HHS Web site that the Medicare trigger legislation includes language that would allow HHS "in a thoughtful, consistent way to enhance quality improvement efforts. ...

"I think there is a potential for bipartisan action on at least this part of the legislation I sent up," he said.

Former congressional aide Bob Gatty covers Washington for businesses specializing in healthcare and related issues.He has written Dermatology Times' Washington Report for 20 years, and welcomes comments and suggestions. Mr. Gatty is available at: bob@gattyedits.com