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Medicare Physician Fees Set to Fall 21.2% in 2010

Posted Nov 05 2009 10:03pm
The American Medical Association (AMA) is supporting the health reform bill in the US House of Representatives that may come to a vote this Saturday, but the voting can't stop there, AMA President J. James Rohack, MD, said. To enact meaningful reform, Dr. Rohack warned that the House also must pass a separate bill on Medicare reimbursement that would avert a 21.2% pay cut for physicians scheduled to take effect January 1. Otherwise, Medicare patients may not be able to find a physician willing to treat them.

"These are separate bills that must be passed together," said Dr. Rohack.

The AMA and much of the rest of organized medicine has supported health reform legislation mainly because they expect it to also change the controversial sustainable growth rate (SGR) formula for setting Medicare rates. An earlier reform bill in the House included a cure for the SGR problem, but that provision helped make it too expensive. So Democratic lawmakers have carved out the SGR fix to make reform legislation more affordable and enable it to meet the goal of being deficit neutral.

Bowing to a statutory framework the Centers for Medicare & Medicaid Services (CMS) issued a final rule reminding stakeholders that physician payments are scheduled to drop beginning January 1. That sharp decline is mandated by the SGR formula adopted in the 1997 Balanced Budget Act, which sets annual spending targets to control aggregate Medicare spending on physician fees. If expenditures exceed the target, physician fees must be reduced.

The SGR calculation has required physician payment reductions every year since 2002. CMS was able to avert the 2003 cut through administrative measures. Congress avoided the 2004-2009 reductions with annual stopgap legislation that postponed each year's cuts, or mandated modest increases, but have not yet enacted a fundamental overhaul of the SGR. With each year, the eventual reduction required to bring physician payments into SGR compliance grew larger. For 2010 it now stands at 21.2%.

The House bill on Medicare reimbursement, H.R. 3961, would revise the SGR formula. The bill would erase the SGR debt from the books and base reimbursement in 2010 on the Medicare Economics Index, which measures inflation in physician-practice costs. This formula would give physicians a 1.2% raise. In 2011, yet another formula takes effect that establishes 2 separate spending targets for physician services. One target, for evaluation and management services and preventive care, is based on GDP plus 2%. The other target, encompassing all other physician services, is based on GDP plus 1%. The bill also removes the cost of physician-administered drugs from spending targets. But this bill would need to pass separately from the current legislation being debated.

Few believe that Congress would allow such steep declines in Medicare physician payments. But the path out of these fiscal difficulties is unclear. The massive health care reform effort under way in Congress has added an extra layer of complexity to the annual consideration of physician fee reductions. The original House draft legislation (HR 3200) included a restructuring of the SGR. But the Congressional Budget Office (CBO) estimated that provision would have added $245 billion to the bill's final cost. As a result, HR 3962, the final draft of House legislation, unveiled by Speaker Nancy Pelosi (D-CA) on October 29 and now headed to full floor debate, eliminated the SGR fix. The AMA is supporting this bill, but there must be some expectation that the SGR formula will change as well.

The Senate Finance Committee's draft health care reform bill replaced the 2010 payment cuts with a 0.5% increase for the year, then allowed the deferred reductions to resume full force in 2011. The House elimination of the SGR restructuring and the Senate Finance minimalist approach reflect a major concern in both chambers not to burden the health care bill with the long-deferred cost of correcting the SGR. Part of that concern is driven by Democrats' desire to preserve Senate legislative options. If Senator Reid cannot muster the 60 votes needed to end debate and prevent filibustering of a bill, he may decide to use a parliamentary maneuver called reconciliation, in which a bill can pass with a simple 51-vote majority. But legislation passed under reconciliation rules must be budget neutral.

The CBO estimated that the Senate Finance Committee bill as drafted met budget neutrality requirements, with costs fully offset by savings. But the CBO cautioned that subsequent modifications could change the cost-offset equation, specifically mentioning more ambitious changes to physician fees as one example.

In an effort to decouple the physician fee fix from the health care reform bill, Senator Debbie Stabenow introduced the Medicare Physician Fairness Act, a standalone bill that would have abandoned the SGR and frozen annual payment rates at current levels. But the CBO estimated the cost of that bill at $247 billion over 10 years. It was voted down on October 21 by a bipartisan majority united in concern that it contained no measures to offset its cost and would increase the federal deficit by a quarter of a trillion dollars.

Senator Reid, who is working on reconciling the 2 Senate draft committee bills into a single proposal, says that the final Senate version will include an annual reversal of the 2010 cut. But Congress is now unlikely to pass a definitive SGR overhaul as part of the current reform package and seems headed toward another year of kicking the can down the road.
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