Why Congress Must Reform the Medicare Physician Payment Formula
Unless congress acts, Medicare physician payment rates will be cut by 5.1 percent on January 1, 2007. If this cut is imposed, Medicare rates will fall 20 percent below the government’s measure of inflation in medical practice costs from 2001-07. If the projected cuts are implemented, the average physician payment rate will be less in 2007 than it was in 2001.
In 2002, physician payments were cut by 5.4 percent. Congress acted to avert payment cuts in 2003, 2004, 2005 and 2006, replacing projected cuts of approximately five percent per year with increases of 1.6 percent in 2003, 1.5 percent in 2004 and 2005, and 0 percent in 2006. Even with these increases, physician payments fell further behind medical practice costs. Practice costs from 2002 through 2005 were about two times the amount of payment increases.
Physicians are the only Medicare providers subjected to the flawed Sustainable Growth Rate (SGR) formula. The SGR, which is tied to the gross domestic product (GDP) and other methodologies, produces negative updates based upon economic factors and not the health care needs of Medicare beneficiaries or, more importantly, physicians’ costs of providing care. The 2005 Medicare Trustee Report projected cuts of approximately 4.5 percent in physician payments through 2012.
Physician payments should reflect increases in practice sots. In its 2006 March Report to Congress, the Medicare Payment Advisory Commission (MedPAC) stated that payments for physicians in 2007 should be increased 2.8 percent. Since 2001, MedPAC has recommended that the SGR formula be replaced by a formula based upon increases in physician practice costs minus a productivity adjustment, which would produce annual updates equal to the Medicare Medical Economic Index (MEI).
On September 6, 2006 the Congressional Budget Office (CBO) released a report including three options for Congress to consider in attempts to reverse the proposed 5.1 percent physician payment cuts. In the report, CBO questioned the validity of decreasing future payment rates to recoup for past spending exceeding the Sustainable Growth Rate (SGR) target. Each of the three proposed options would increase payments for physician services, which would in turn increase beneficiary Part B premiums.
Option One would increase payment rates by 1 percent in 2007, but does not treat the update as a change in law or regulation. According to CBO, this would cause future payments to be lower than they otherwise would have been. The cost would be $13 billion from 2007 to 2011, and spending per beneficiary would be five percent lower in 2016 than under current law.
Option Two would increase payment rates by 1 percent in 2007, and treat the update as a change in law or regulation. The cost would be $13 billion over five years, and $31 billion from 2007 to 2016. Spending per beneficiary would be five percent higher than under current law.
Option Three would allow payment rates to increase by the amount of medical inflation. This would replace the current system completely, and average physician payment would increase between two and three percent annually. The cost would be $58 billion from 2007 to 2011, and $218 billion from 2007 to 2016.
Ongoing efforts are continuing with our American Osteopathic Association partners to convince key members of Congress to replace the flawed SGR formula. We will keep you informed of our progress on these initiatives on www.acofp.org, and in Osteopathic Family Physician News.
