October, 2006

Medicare payments to be cut by at least 37 percent by 2015

By Marcelino Oliva, DO, FACOFP and Ray Quintero

?The Centers for Medicare and Medicaid Services (CMS) recently announced that Medicare physician payments will be cut 5.1 percent as of January 1, 2007. These cuts are much worse than the original projection of 4.7 percent announced by CMS earlier this year.

The cuts projected for January 2007 are just the beginning. CMS also predicts Medicare payments to physicians will be cut by 37 percent or more over the next nine years. During this same period, your practice costs are projected to increase by more than 20 percent — meaning that Medicare reimbursements will fall further below the actual costs of providing care.

Additionally, these cuts come at a time when millions of Baby Boomers are becoming eligible for Medicare benefits, placing greater strain on the Medicare program. Until a more predictable and equitable physician payment formula is established, thousands of physicians will be forced to limit the number of Medicare patients they treat, or choose to no longer participate in the Medicare program altogether. This will result in reduced access to physician services for millions of Medicare beneficiaries in the future.

The current Medicare physician payment formula is inequitable and punishes physicians for providing services encouraged by the Medicare program. Since 1999, Medicare has expanded the number of treatment options it covers more than 90 times. Under the current payment system, your payments are reduced as a result of providing the services covered by the Medicare program. This methodology makes little sense, and is adverse to the provision of quality medical care.

As a result of the flawed Medicare physician payment formula, physician payments were cut by 5.4 percent in 2002. 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 both 2004 and 2005, and a freeze at 2005 levels for 2006.

Physicians should be reimbursed in a more predictable and equitable manner, similar to other Medicare providers. Physicians are the only Medicare providers subjected to the flawed sustainable growth rate (SGR) formula. Since the SGR is tied to flawed methodologies, it routinely produces negative updates based upon economic factors, not the health care needs of beneficiaries. And, it has never demonstrated the ability to reflect increases in physicians’ costs of providing care. Every Medicare provider, except physicians, receives annual positive updates based upon increases in practice costs. Hospitals and other Medicare providers do not face the possibility of “real dollar” cuts — only adjustments in their rates of increase.

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.

Congress needs to hear from you. Tell your Members of Congress to take steps to ensure that all physicians participating in the Medicare program receive positive annual payment updates, beginning with a positive 2.8 percent update in 2007 as recommended by MedPAC.

Burgess and Dingell Introduce Physician Payment Legislation
Two bills were recently introduced aimed at resolving the Medicare Physician Payment issue. Representative Michael Burgess, MD (R-TX) introduced the “Medicare Physician Payment Reform and Quality Improvement Act of 2006” (H.R. 5866). Rep. John Dingell (D-MI) introduced the “Patients’ Access to Physicians Act of 2006” (H.R. 5916). Both pieces of legislation have been referred to the Committee on Energy and Commerce and the Committee on Ways and Means.

H.R. 5866 reforms the Medicare physician payment formula by eliminating the use of the SGR formula. The new payment mechanism would be Medicare Economic Index (MEI) minus 1 percentage point. The bill establishes a voluntary quality reporting program for physicians beginning as soon as January 1, 2009, and requires the Secretary of HHS to report on growth in volume for physician services. The bill authorizes balanced billing for physicians participating in the Medicare program, a policy supported by the ACOFP. The bill mandates a one-year delay in the implementation of adjustments in payments for imaging services.

H.R. 5916 calls for a minimum update for physicians’ services for fiscal years 2007 and 2008. The update to the single conversion factor will not be less than MEI plus 1 percentage point for each respective year.

Physician Payment Dear Colleague Letters
Senator John Kyl (R-AZ) and Sen. Debbie Stabenow (D-MI) circulated a dear colleague letter urging their fellow Senators to address Medicare physician payment cuts prior to adjourning in October. The letter garnered bipartisan support of 80 members of the Senate.

Rep. Nancy Johnson (R-CT) and Rep. Ben Cardin (D-MD) are currently circulating a similar letter to their colleagues in the House of Representatives. They, too, are asking their fellow members to join in asking House leadership to address the impending cuts prior to adjourning in October. The letter is anticipated to remain open for signatures until early September.

Hearings Held on Transparency in Medicine
July 18, the House Ways and Means Subcommittee on Health held a hearing titled “Price Transparency in Health Care Sector.” The hearing, chaired by Rep. Nancy Johnson (R-CT), focused upon all elements of price transparency from hospitals to insurance to physicians to patients. The panelists primarily discussed the necessity for patients to be provided with pricing information in order to make better-informed decisions in selecting their own care.

Of note, it was pointed out that the cheapest price does not translate necessarily to the highest quality of care. Ideally, price transparency in the health care sector will enable patients and physicians alike to become better informed and regain control of their decisions.

Interest is growing in relation to transparency in health care. The Kaiser Foundation held a live web conference on July 25. The views of insurance providers, physicians and academics were included on the panel. The group agreed on three main principles similar to those of the House Ways and Means Health Subcommittee.

1. The increase in consumer sharing in the cost of health care has, in large part, necessitated this move toward cost transparency.
2. Transparency will not only provide consumers with increased pricing information, but will also provide quality measures.
3. Informing consumers will not necessarily have any effect on health care costs or quality of care.

President Bush Issues Executive Order
President Bush issued his Executive Order, “Promoting Quality And Efficient Health Care In Federal Government Administered Or Sponsored Health Care Programs” on August 22, 2006.

The Executive Order requires all health care programs administered or sponsored by the federal government promote quality and efficient health care through the use of health information technology, transparency regarding health care quality and price, and better incentives for program beneficiaries, enrollees and providers.

In his comments, President Bush stated the Executive Order would assist beneficiaries by making information on quality and price available in a readily-useable manner. He added the Executive Order requires collaboration between programs in the federal government, with initiatives underway in the private sector and non-federal public sector.

The provisions included in the Executive Order are applicable to all federal agencies that administer or sponsor a federal health care program. This includes Medicare, Veterans Affairs, the Federal Employees Health Benefit Program, Indian Health Service and TRICARE. It does not apply to Medicaid or the State Children’s Health Insurance Program (SCHIP). Programs must be in compliance with the Executive Order on or before January 1, 2007.

President Bush’s Executive Order contains four directives:

1. Health Information Technology
   All federal agencies, as they implement, acquire or upgrade health information systems used for the direct exchange of health information between agencies and with non-federal entities, shall utilize, where available, health information technology systems and products that meet recognized interoperability standards. Additionally, each agency shall require, through contracts or agreements, that providers, health plans or health issuers that implement, acquire or upgrade their health information technology systems, be required to utilize, where available, health information technology systems and products that meet recognized interoperability standards.
2. Transparency of Quality Measurements
   All federal agencies shall implement programs measuring the quality of services delivered by health care providers to the beneficiaries or enrollees of a federal health care program. These programs shall be based upon standards established by multi-stakeholder entities identified by the Secretary or by another agency subject to this order. Each agency shall develop its quality measurements in collaboration with similar initiatives in the private and non-federal public sectors. Agencies are considered to be in compliance if they participate in a data-sharing program that facilitates the aggregation of claims and other appropriate data for the purposes of quality measurement. Such aggregation shall be based upon standards established by multi-stakeholder entities identified by the Secretary or by another agency subject to this order.
3. Transparency of Pricing Information
   All federal agencies are required to make available to beneficiaries or enrollees the prices that its health insurance plans pay, to providers, for procedures. This provision is applicable to all contracts. Additionally, each agency, in collaboration with multi-stakeholder groups, must assist in the development of information regarding the overall costs of services for common episodes of care and the treatment of common chronic diseases.
4. Promoting Quality and Efficiency of Care
   All federal agencies shall develop and identify, for beneficiaries, enrollees, and providers, approaches that encourage and facilitate the delivery of high-quality and efficient health care. Such approaches may include pay-for-performance models of reimbursement consistent with current law. Any agency offering a consumer-driven health plan is considered to be in compliance with this directive.

Family Physician Salaries Decline 10.2 Percent
According to a recent study from the Center for Studying Health System Change (HSC), physicians’ net annual income is declining. Between 1995 and 2003, physi­cians experienced a seven percent decrease in net income after adjusting for inflation. This income decrease is in stark contrast to other professionals who saw a seven percent increase in their income during the same time period.

Family physicians actually fared the worst of all physicians in facing a 10.2 percent decline in real income during the 1995 and 2003 period. HSC predicts that the result could be an imbalance in the physician workforce and a potential shortage of primary care physicians. Although physicians are concentrating a larger proportion of their time caring for patients than in the 1990s, declining fees from public and private payers have affect­ed negatively net income. Of course, the primary driver of overall payment is Medi­care and Medicaid reimbursement, which will decline over the next several years without Congressional intervention.

Marcelino Oliva, DO, FACOFP chairs the ACOFP Committee on Federal Legislation. Ray Quintero serves as ACOFP’s Director of Government Affairs. ACOFP members may contact Mr. Quintero at 800-962-9008, extension 8648, or by e-mail at rquintero@osteopathic.org.