Will medicare beneficiaries suffer as payments drop?

May 1, 2005

Washington — Dermatologists and other physicians, as well as Medicare beneficiaries, are in for a shock next year, according to government officials, who announced in late March that Medicare will slash physician payments by 4.3 percent on average in 2006 and impose an $11-per-month premium increase on beneficiaries.

Both actions are necessary, according to the Centers for Medicare & Medicaid Services (CMS), because Medicare spending for physicians' services jumped 15 percent last year, a development that CMS Administrator Mark B. McClellan, M.D., says was cause for "great concern."

In a letter to the Medicare Payment Advisory Commission (MedPAC), Herb B. Kuhn, director of the CMS Center for Medicare Management, states that "cumulative physician fee schedule expenditures from 1996 to 2005" also contributed to the need for the physician payment reduction.

The issue would seem to pit patients against doctors in a potentially difficult struggle, since any relief provided to doctors by Congress will result in offsetting increases in premiums for beneficiaries.

In February, William F. Gee, M.D., representing the Alliance of Specialty Medicine, which includes the American Academy of Dermatology Association, urged Congress to remove inequities from the Medicare payment Sustainable Growth Rate (SGR) formula, warning that failure to do so would result in reductions of roughly 5 percent each year from 2006 to 2012, with rates not returning to their 2002 level until well after 2013.

"In other words, physicians will receive less reimbursement in 2013 than they did in 2002 for the exact same procedure, regardless of inflation and increased practice costs," Dr. Gee, a urologist, told the House Ways and Means Health Subcommittee in testimony February 10.

"While reimbursement will likely be cut by over 30 percent under the current formula during that time period, it is estimated that costs for providing services will rise by close to 20 percent. Such cuts will further inhibit each physician's ability to provide services to Medicare beneficiaries, as many physicians will simply be unable to afford to treat Medicare patients," Dr. Gee testified.

According to CMS, the sharp increase in Medicare spending last year is attributable to five areas:

Because of a new controversial policy instituted last year, drug payments declined and drug administration fees increased, which CMS estimated would approximately offset each other. However, CMS says it is further studying that issue, because "The significant increase in drug spending despite large reductions in drug prices suggests that utilization of physician-administered drugs increased substantially."

Mr. Kuhn says the numbers contained in his letter are preliminary and subject to revision as spending trends are examined more closely.