Fixing the Fatal Flaw: AMA Pushes Bill to Fix Medicare Payment Formula

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Legislative Affairs Feature - July 2005

By  Ken Ortolon
Senior Editor

America's seniors will get help paying for their medications when the new Medicare prescription drug benefit takes effect in January. But physicians fear those seniors will have trouble finding doctors to prescribe the drugs.

A series of Medicare physician fee cuts scheduled to begin in January would slice doctors' reimbursement by 26 percent over the next six years, including 4.3 percent in 2006. Those cuts, driven by a payment formula that the American Medical Association and the Texas Medical Association say is hopelessly flawed, could force many physicians out of practice or at least out of Medicare.

Legislation was filed in Congress in May to stop the payment cuts, and AMA has launched a full-court press to convince lawmakers to permanently fix the payment mechanism, known as the Sustainable Growth Rate (SGR) formula. Failure to do so could have dire consequences for access to care for Medicare beneficiaries, says Temple cardiologist Jim Rohack, MD, immediate past chair of the AMA Board of Trustees. He says the SGR formula is simply unsustainable for physicians and patients.

"You don't need an MBA to know you can't sustain a viable practice that way," Dr. Rohack said. 

Putting in the Fix

AMA has thrown its support behind HR 2356 by U.S. Reps. E. Clay Shaw Jr. (R-Fla.) and Benjamin Cardin (D-Md.). The bill replaces the SGR formula with an annual Medicare payment update system that would reflect actual practice cost increases. It would replace the scheduled 4.3-percent cut for 2006 with a 2.7-percent increase, with the new annual updates to begin in 2007.

AMA also is asking physicians to back another measure in the U.S. Senate. S. 1081, by Sens. Jon Kyl (R-Ariz.) and Debbie Stabenow (D-Mich.), replaces the projected cuts with increases of 2.7 percent in 2006 and 2.6 percent in 2007. However, that measure would not permanently fix the SGR, meaning physicians likely would face another round of fee cuts in 2008.

In early June, AMA launched a barnstorming campaign across the nation to take its message about the dire consequences of further Medicare cuts directly to the people. The tour started in Texas, where Dr. Rohack and TMA President Robert T. Gunby Jr., MD, of Dallas, and Immediate Past President Bohn D. Allen, MD, of Arlington, met with the news media and physicians in Dallas, Fort Worth, Corpus Christi, and Houston.

"Physicians want to serve their senior patients, but they cannot afford to accept an unlimited number of new Medicare patients into their practices if Medicare payments do not keep up with the cost of providing care," Dr. Rohack said.

The Medical Group Management Association estimates Medicare physician fees only cover 65 percent of the cost of providing care.

Congress enacted the SGR in 1997 to slow growth in Medicare spending for physician services. But unlike the hospital fee formula, the SGR does not allow physician fees to rise as physician practice costs increase.

Instead, the SGR bases annual updates in physician fees on such factors as medical inflation, changes in the gross domestic product (GDP), and increased enrollment in traditional fee-for-service Medicare. Each year, Medicare officials set a spending target for physician services. If the volume of physician services delivered exceeds expectations, the formula automatically reduces fees to keep total spending within the target.

Critics say linking physician payments to GDP makes no sense because fluctuations in general economic conditions, as measured by GDP, have little relationship to the cost of providing patient services.

They also say cutting physician fees to counteract increased utilization is unfair. The primary drivers of utilization are new or improved technologies, increased beneficiary awareness of potential treatment options, and a general shift from inpatient to outpatient care. Those factors, they say, are beyond physicians' control.

 In the first few years the SGR was in place, physician fees grew modestly as GDP grew. But fees peaked in 2001 and declines in GDP and increases in volume of services began forcing fees down. Congress halted projected fee cuts for 2004 and 2005 and actually approved a modest fee increase as part of the Medicare Modernization Act. But that was only temporary and did not address either the underlying formula or the Medicare spending targets. That, medical economists say, exacerbated the problem, producing large cuts over the next several years to make up for the temporary fix. 

Protecting Patient Access

Representative Shaw says Medicare beneficiaries in his state may lose access to doctors if fees are cut. That concern was echoed by physicians.

"Given the surveys that we have done here in Texas and those done by the AMA, it is very clear that physicians would have a difficult time providing services to Medicare patients if these cuts take place," said Wichita Falls pathologist Susan Strate, MD, chair of TMA's Council on Socioeconomics.

An AMA survey found that 38 percent of physicians would stop taking new Medicare patients if fees are cut. Still others said they would delay purchasing needed medical equipment or new information technology.

Both Drs. Rohack and Strate say Texas patients could be particularly hard hit because of the state's demographics and its physician workforce. Texas' share of the projected cuts for the first year alone total $169 million.

"We have a very diverse medical practice situation in Texas that is particularly vulnerable, especially in our rural areas where there is a heavy mix of Medicare, Medicaid, and uninsured patients," Dr. Strate said. 

Measuring the Odds

Neither AMA officials nor a spokesperson for Congressman Shaw would predict the chances of getting the permanent Medicare fix passed this year, but political observers speculate that passing any bill with significant budget implications would be difficult because of the current large federal budget deficit.

"We need a permanent fix to that formula because it does not work," Dr. Strate said. "What we need is a Medicare payment system that reflects that physician practice expenses are going up."

Dr. Rohack is concerned Congress will opt to "kick the can down the road" by passing another temporary fix and let a future Congress deal with the underlying problem. "It's time to make the change to get to a model that reflects reality."

Ken Ortolon can be reached by telephone at (800) 880-1300, ext. 1392, or (512) 370-1392; by fax at (512) 370-1629; or by email at  Ken Ortolon.  

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