Cover Story -- February 2004
How Medicare Reform Affects You: Fees Are Raised, Patients' Access
to Care Is Preserved
By Walt Borges
The preliminary numbers from the Texas Medical Association's
2004 physician survey sketch a disturbing trend for Medicare in
Texas, one that has serious implications for an aging population in
the Lone Star State if unchecked. (See "Medicare Participation of TMA Survey
Respondents.") It found that only 67 percent of the nearly 600 Texas
physicians surveyed accept all Medicare patients seeking
In 2000, 78 percent of Texas doctors welcomed Medicare patients
without limitation. In 2002, the number was 74 percent.
Ask TMA leaders what's prompting the declining participation in
Medicare and they'll cite falling pay, rising overhead costs, and
administrative burdens that make treating Medicare patients a
wearying and often costly exercise in frustration.
So the reforms enacted by Congress and signed by President George
W. Bush in December were welcome relief for many Texas doctors. For
them, the major impact of the reforms is not the widely publicized
changes such as pharmaceutical benefits for the elderly, nor the
expanded incentives for creating specialized health savings
accounts. It is the short-term victory that staved off a cut in
fees, a victory that came from intense lobbying by the American
Medical Association, TMA, specialty societies, and physicians
around the country. (See "How TMA Helped Reform Medicare.") As part of the bill, Congress canceled a planned 4.5-percent
cut in reimbursement and approved instead a 1.5-percent increase
for both 2004 and 2005.
"It is fortunate that we were able to avoid Medicare cuts,
because one-third of Texas physicians are either not taking
Medicare patients or limiting the number they see," said TMA
President Charles W. Bailey Jr., MD. "If we had not stopped the
cuts, the big damage would have been that primary care physicians
would have had great difficulty in finding specialists to accept
their referrals. Specialists simply can't meet their expenses at
the reimbursement levels."
Former TMA President James Rohack, MD, chair-elect of the AMA
Board of Trustees, agrees that repealing the fee cut was the
biggest gain for Texas physicians.
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"The first thing that was accomplished was to assure patient
access to physicians by adequately eimbursing physicians," Dr.
Both Drs. Rohack and Bailey say the bill is far from perfect and
further congressional action will be needed.
Dr. Bailey says organized medicine must make sure policies,
rules, and regulations implementing the bill do not undo or
complicate organized medicine's victories. TMA and its member
physicians are grateful to Texas representatives and senators who
gave overwhelming support to the views of organized medicine, he
As TMA leaders look to the next steps to preserve Medicare
participation, many Texas doctors simply want to know how the
reforms will affect them. Following are some provisions that most
affect Texas physicians.
Fees Raised, Not Cut
The foremost impact will be on physician reimbursement since the
planned 4.5-perent cut was replaced with the 1.5-percent increase
this year and next.
AMA estimates the reform package will bring $424 million to
Texas physicians, says AMA President Donald Palmisano, MD, instead
of the $186 million loss originally planned for 2004. Dr. Rohack
says that means an average of $18,000 over two years for each Texas
"The good news is that we didn't get the 4.5 percent cut," said
Lewis Foxhall, MD, chair of TMA's Council on Socioeconomics. "The
fair news is that we got a 1.5-percent increase, but that's not
keeping up with inflation of the costs of health care."
Other leaders in the medical community share Dr. Foxhall's
concern that the reimbursement victory is a short-term one and that
another trip to Congress to secure long-term stability and growth
will be necessary.
"Medicare cuts have totaled 15 to 18 percent over the last
several years, while physicians have faced making a payroll every
two weeks in a [Medicare] system in which we can't predict
reimbursement," said David G. Shulman, MD, a San Antonio
ophthalmologist who chairs the Council of the American Academy of
Ophthalmology. "We can't make long-term plans because of the
The culprit is the federal formula for adjusting reimbursement.
Medicare fees are based on the Sustainable Growth Rate (SGR)
compiled by the federal government. The SGR is adjusted as the
economy ebbs and flows. A decrease in an SGR component such as the
gross domestic product (GDP) triggers reduced Medicare fees unless
Congress intervenes to block the adjustment, as it did in 2003.
Dr. Foxhall points out that the health care sector of the
economy doesn't necessarily contract when the economy shrinks. A
medical practice's overhead (rent, operational costs, and payroll)
doesn't decrease when the economy slows.
Dr. Palmisano agrees that the payment formula needs to be
changed. "We want a fair formula that takes into account actual
health care costs."
Bonuses Paid for Underserved Areas
Congress authorized temporary 5-percent bonuses for primary care
physicians and specialists who accept Medicare patients in areas
the government classifies as underserved. The bonuses, which will
be paid on every claim submitted, will begin in 2005 and end in
2007. The bonuses will bring an extra $28 million into Texas over
those three years.
Dr. Foxhall says there is still a question about which
government agency will identify the underserved areas.
Some Pay Disparities Eliminated
In Texas, many physicians live and practice in rural settings
found in most of the 254 Texas counties. Being a "country" doctor
in the eyes of the government presented those treating Medicare
patients with lower reimbursement than their urban colleagues.
The federal government uses a geographic practice cost index
(GCPI) to determine what doctors should be paid for their services.
The index is set at 1.0 -- 100 percent of the base reimbursement --
for most urban areas, but is usually lower for rural areas,
creating geographic disparities in reimbursement for the same
The bill lessens those disparities. The work component of the
GPCI will be set at 100 percent of the urban total for 2004 to
2006. That change means an extra $143 million for Texas over those
"We have a large number of physicians in rural counties who have
been affected by the disparity in the past, so for them this is a
welcome change," Dr. Foxhall said.
Oncologists Face Cuts
TMA and AMA leaders acknowledge they supported the reform bill
despite cuts in reimbursement for cancer treatment drugs. But they
expect to negotiate with federal officials to rectify what they
characterize as a necessary compromise to pass the bill.
Congressional hackles were raised, Dr. Foxhall says, because
physicians who administer drugs during in-office treatments were
allowed to seek reimbursement at 95 percent of the wholesale price
of the drug, regardless of the actual cost.
Government officials viewed that differential as a
windfall, even though the differential actually covered the
unreimbursed administrative costs of purchasing and administering
the drugs, Dr. Foxhall explains.
"The reform legislation ratchets the reimbursement down to 85
percent of the average wholesale price [AWP] in 2004, then to the
average sales price plus 6 percent [in 2005]," he said. "In the
meantime, the physicians and practices are to get better
reimbursement for administrative costs of purchasing and
administering the medication."
Dr. Palmisano says the final reimbursement provision for the
drug purchases is double what was originally proposed, thanks to
lobbying by organized medicine. Although the figure was less than
satisfactory for oncologists, AMA supported the final version of
Dr. Rohack says Congress wanted to reduce AWP payments by $16
billion, while the final bill cut oncology payments by $4.2 billion
over 10 years.
"We have not abandoned the oncologists," Dr. Palmisano said. "We
expect Congress to tinker with this bill for years to come, and we
will tell them that doctors are not being paid enough for
administering the drugs."
CPT Codes Retained
A plan to switch Medicare claims coding from the Current
Procedural Terminology (CPT) codes to the International
Classification of Disease-10 (ICD-10) codes was scrapped.
Physicians would have had to replace a coding system with
approximately 7,000 codes with one that uses 170,000 codes.
Electronic Prescribing Made Voluntary
Congressional reformers originally proposed requiring electronic
prescribing of medication, but the final bill made it
Many physicians in rural areas or those not wired to the
Internet would have had trouble complying with the initiative. Dr.
Rohack says other physicians objected to the prescribing
requirement as another unfunded government mandate that would add
to their financial stress.
The government will continue to encourage electronic prescribing
by providing incentive grants to small, rural, and low-volume
practices, congressional bill summaries indicate.
Regulatory Burdens Eased
Dr. Palmisano says organized medicine won significant victories
in easing Medicare's regulatory burdens and making sure physicians
have a fair chance to defend themselves when audited or questioned
about their billing.
For example, penalties will not be levied against doctors who
rely on erroneous advice from the Centers for Medicare &
Medicaid Services or from the Medicare contractors in each
The new law also formalizes the processes for carrier audits of
physicians and practices, defers financial penalties until appeals
of penalties are completed, and allows installment payments when
Medicare recoups overpayments.
Prescription Drug Benefit Established
The most widely publicized feature of the bill, the
pharmaceutical benefits for Medicare patients, takes effect in
Dr. Shulman says many doctors "were disappointed that it won't
be in action until 2006," but he thinks the benefit will ultimately
provide needed care for elderly patients.
Dr. Bailey agreed. "I think all physicians like prescriptions
for the elderly to be covered."
But he says most physicians' pleasure with the passage of the
benefit for their elderly patients is tempered by the reality that
health care dollars are limited, especially as the baby boomers
begin to enroll in Medicare.
According to the conservative Heritage Foundation, the drug
benefit will add an estimated $2 trillion to Medicare's $5 trillion
shortfall by 2030.
Texas physicians may see changes in the way they conduct their
business if employers take advantage of provisions that allow
everyone -- not just Medicare enrollees -- to establish health
savings accounts (HSAs).
AMA has long supported the concept of tax-exempt savings
accounts to provide a long-term base for individual health care
costs because, Dr. Palmisano says, "it encourages the individual to
be a prudent purchaser of medical care."
If employers fund HSAs for their employees through annual
contributions of a defined amount, employees will be able to save
and transport their health care dollars over the years. Congress
required health plans offering HSAs to include "high" deductibles
of at least $1,000 for an individual and $2,500 for a family. The
theory is that individuals will make economic decisions about their
elective health care if they are more in control of how the money
Critics contend HSAs are a tax break for the wealthy, and many
Americans won't take advantage of the savings unless employers step
forward to make adequate defined contributions toward the accounts.
They also contend that tax-free accounts contribute to falling
government revenues when deficits are mounting. And a number of
economists suggest that the special-purpose savings accounts do
little to promote real savings, but instead allow those with
substantial assets to shelter their savings from taxation.
Medicare HMOs Renamed
The reform bill renamed the HMO component of the Medicare system
from Medicare+Choice to the Medicare Advantage Program.
Dr. Foxhall expressed concern over the role given HMOs in the
"Under the previous system, managed care organizations worked as
long as the HMOs were making money. When they were no longer making
money, they took off. I'm concerned that we are entering another
cycle and that the same thing will happen."
For patients, joining a Medicare HMO gives them benefits that
exceed the features available under the traditional Medicare
"That may create some pressure on traditional Medicare
providers. It may force them to offer bells and whistles," Dr.
Dr. Shulman says he expects patients to weigh several
factors before signing up for managed care.
"The Bush administration says that a patient's options have been
increased," he said. "But choosing an HMO also limits a patient's
ability to see the medical professional of their choice."
Dr. Palmisano noted that "patients don't have to go to the
HMOs," but the option is there for those who will benefit.
The new Medicare law did give Medicare HMOs, which cover an
estimated 4.56 million Americans, an immediate break. They will
collect an additional $1.3 billion in 2004 and 2005, a move that
government officials call an enticement to stay in the system.
Industry officials say it is needed because the payment formula has
shortchanged HMOs for the past several years.
So will baby boomers have care under Medicare? Will enough
physicians stay in the system to provide services? Will Texas
physicians continue to drop or limit their Medicare patients?
"There's nothing in these reforms that will encourage physicians
to want more Medicare business," Dr. Foxhall said. "The
compensation of Medicare physicians is declining with regards to
the inflation of the costs of providing medical services. At the
same time, there is a concern that practices may face increasing
Dr. Foxhall says TMA and AMA will continue working to make sure
the federal payment formula is adjusted to more accurately and
fairly compensate Medicare doctors and to reduce administrative
Dr. Bailey expects TMA lobbyists to return to Washington soon to
correct the deficiencies in the new Medicare law. He says the
debates of 2003 have at least made physicians aware that Medicare
is facing a huge challenge and that the reforms are just the first
revisions to the health program.
"Medicare is held together with duct tape and bailing wire," Dr.
Bailey said. "This legislation is a Band-Aid. The whole system must
be looked at critically if it is to be viable for any length of
How TMA Helped Reform Medicare
David Shulman, MD, spent some time in Washington last year
talking with his friends in Congress.
Dr. Shulman wore two hats when talking with hometown congressmen
such as Reps. Ciro Rodriguez, a Democrat, and Lamar Smith, a
Republican, about Medicare. He provided the legislators with the
views of both the Texas Medical Association and the American
Academy of Ophthalmology, of which he is Council chair.
"We wanted to show Congress that physicians are interested in
providing quality health care, but that we can't continue to do so
if Medicare reimbursements are cut," Dr. Shulman said. "Physicians
want the technology to provide the best services to patients. But
Texas physicians are always asking themselves, 'How can I fit that
in the budget? How can I plan for it if the uncertainty over
Medicare reimbursement continues?'"
The San Antonio ophthalmologist said of the experience, "We were
successful because medicine had one voice and it included the
state, national, and specialty societies."
Dr. Shulman's sentiments were echoed by American Medical
Association President Donald Palmisano, MD. "It was a victory
because the family of medicine spoke with one voice, one message,"
he told the AMA House of Delegates in December.
Dr. Palmisano acknowledges a variety of opinions among
physicians on many parts of the bill and the effectiveness of the
reforms. But Congress was persuaded to act because physicians
united on the major points and pledged to correct the flaws.
TMA waged a grassroots campaign to win the support of the Texas
congressional delegation, says TMA President Charles W. Bailey Jr.,
MD. The association mobilized about 1,000 physicians in the fight
to change Medicare proposals. While most of them were contacted by
direct-mail campaigns and asked to call or write their local
representatives, about 45 doctors participated in a program that
promotes direct contact with elected officials.
Dr. Shulman says he advises TMA members to be good friends to
their representatives, and state officials as well, if they want to
educate those elected officials on medical issues.
TMA officers, including Dr. Bailey, were frequent visitors in
the offices of senators and representatives during the Medicare
debate. Dr. Bailey says their success illustrates one point about
the modern physician working within TMA: It's not enough to treat
patients anymore. Physicians must speak for them, too.
"As physicians, we took an oath to take care of our patients,"
he said. "With so many issues facing physicians and our patients,
we can no longer remain isolated in our offices. We must
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Medicare Participation of TMA Survey Respondents
Accept all Medicare patients
Decline new Medicare patients
Limit Medicare patients
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