Medicare Meltdown

Uncertainty Over Medicare Fees May Force Texas Physicians to Drop Out of the Program

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Cover Story – December 2011

Tex Med. 2011;107(12):16-20.

By Ken Ortolon
Senior Editor

In 2010, the large multispecialty group Austin Regional Clinic (ARC) closed its practice to new Medicare patients.

"We're not happy about that," said family physician Greg Sheff, MD, one of ARC's medical directors. "In fact, that was a decision we were forced into because of the growth of our [existing] Medicare population."

Dr. Sheff says ARC spends an average of $1.20 treating Medicare patients for every $1 it receives in payments, making it increasingly untenable for ARC physicians to take on new Medicare patients.

"This is reaching a crisis point where we're going to be fiscally unable to serve that population," he said.

Thousands of other Texas physicians echo his concerns. They said in a Texas Medical Association survey released in October that they already have or likely would drop out of Medicare if a scheduled 27.4-percent cut in physician payments takes effect Jan. 1. In fact, 50 percent said they are considering opting out of Medicare because of the impending fee cuts.

"We knew some physicians would consider leaving the program, but we didn't think the number would be that high," said TMA President C. Bruce Malone, MD.

The scheduled cut is the latest round in a decade-long saga spawned by the Medicare Sustainable Growth Rate (SGR) formula. Each year, the flawed SGR requires fee cuts to offset growing demand for Medicare services, and each year, Congress minimizes those cuts or approves a minimal fee increase through a temporary fix.

But each time Congress fails to repeal the SGR and replace it with a more sensible system, the SGR-driven cuts grow for the next year, and the cost of fixing the problem compounds.

While at least one member of the Texas congressional delegation says Congress will again stave off the looming cuts, physicians are not optimistic about other available options. The Medicare Payment Advisory Commission (MedPAC) recently recommended repealing the SGR but offsetting the cost by freezing and/or cutting fees.

On top of the prospective 27.4-percent cut and MedPAC-recommended reductions, an additional 2-percent across-the-board cut in payments for all Medicare providers could take effect automatically in 2013 if a special congressional debt committee cannot come up with a plan to trim $1.2 trillion in savings from the federal budget over the next 10 years.

The only bright spot in the debate appears to be an American Medical Association campaign to get lawmakers to sign a letter urging repeal of the SGR.

TMA officials also support repealing the SGR and called on Congress to freeze payments to hospitals, drug makers, and other Medicare providers – which have increased over recent years – until the SGR is fixed. They warn the impact on access across the nation could be huge if Congress fails to solve the problem, even if the proposed cuts are drastically reduced.

Dr. Malone urged Texas physicians to tell U.S. Sens. John Cornyn and Kay Bailey Hutchison and their U.S. representative it's time to stop treating physicians like the low profession on the Medicare totem pole. While physician fees remained flat or declined slightly because of congressional action, payments to hospitals and some other Medicare providers continued to climb due to regular updates for inflation in the health care market as measured by the Medicare Economic Index (MEI).

"For the past decade, Congress has recognized the value that hospitals, nursing homes, home health services, durable medical equipment, and other health care professionals provide Medicare patients. They all have received annual payment updates. Physicians should, too. Before any future updates are given, Washington needs to fix the broken physician payment system," Dr. Malone wrote TMA members in October.

"My greatest fear with the SGR is all of the ramifications for our patients if this thing is not fixed," said Athens family physician Douglas Curran, MD, a member of the TMA Board of Trustees. "It's going to be an enormous issue for access. If Congress doesn't act on this and act responsibly, it's going to hurt our patients."

The growing menace

Congress enacted the SGR more than a decade ago to control use of services in Medicare Part B, which primarily covers physician services. The idea is that Congress sets a target amount to cover Part B costs, and if spending exceeds that amount, the government cuts physician fees to offset the difference.

The problem is that swelling Medicare enrollment increased utilization above the spending target every year during the past decade, forcing physician fee cuts under the formula. Every year, Congress put off those cuts, making the cost of repealing the SGR grow exponentially. Last year alone, Congress temporarily postponed a scheduled 25-percent cut five times while it attempted but failed to find a long-term solution.

 Darren Whitehurst, TMA vice president for advocacy, says the cost of fixing the SGR has grown from $40 billion to more than $300 billion during eight years at TMA. He says this may be Congress' last chance to address the issue before the cost of repeal gets so huge it can't find the money to pay for it.

"With shrinking revenues, it's going to be more difficult to find the money," he said. "This may not be our best chance, but it could be the last chance to figure out a permanent fix because it's not in the realm of reality that you could find a $300 billion fix and pay for it."

MedPAC apparently agrees. For 10 years, it recommended Congress repeal the SGR, but this year it adopted a controversial proposal to help Congress pay for the fix.

Under the MedPAC plan, the government would save some $100 billion over 10 years by freezing rates for most primary care physician services and cutting rates for other physician services by 5.9 percent annually for three years. A seven-year freeze on those payments would follow the cuts. Additionally, MedPAC recommended $220 million in cuts for other providers and beneficiaries, including 34 percent from drug makers, 15 percent from beneficiaries, 11 percent from hospitals, and 6 percent from durable medical equipment makers.

 Commission members said they made the recommendation to spur action on SGR repeal. But while TMA, AMA, and other groups urge repeal, the MedPAC recommendation found little support.

Dr. Curran says the MedPAC proposal is "just not reality. We can't pay our bills with freezes for everybody and cuts for everybody. You can't keep your employees. You can't do the things you have to do to take care of patients."

TMA and others would like to see physician payments tied to the MEI, as are hospital and other provider payments. 

Not that super

AMA and others put their hopes for an SGR fix on the Joint Select Committee on Deficit Reduction – the so-called "super committee" – created earlier this year under the compromise plan to raise the federal debt ceiling.

That panel is charged with identifying at least $1.2 trillion in spending cuts. The committee is under pressure to include SGR in its deliberations.

As of early October, 114 members of the U.S. House of Representatives had signed a letter circulated by Rep. Allyson Schwartz (D-Penn.) urging the super committee to recommend repeal of the SGR. Among the signers were 92 Democrats and 21 Republicans.

Texas representatives who signed the letter include Reps. Henry Cuellar (D-Laredo), Charlie Gonzalez (D-San Antonio), John Carter (R-Georgetown), and Silvestre Reyes (D-El Paso).

Not everyone in Congress thinks the super committee is the appropriate venue for addressing the SGR. U.S. Rep. Michael Burgess, MD (R-Lewisville), says the committee had only until the end of November to produce its recommendations. That, he says, is not enough time for the committee to address an issue that "has bedeviled the Congress" for more than a decade.

"They're going to solve it in a month in a way that is meaningful and palatable to the people who will have to accept the recommendations? I'm not sure they can do that. They call it the super committee, but I don't think it's that super."

In addition to the minimal time the committee had to finish its work, Representative Burgess also didn't like the fact that the panel planned to submit its recommendations to Congress as a take-it-or-leave-it proposition, meaning there would be no opportunity to amend the proposal.

He prefers Congress pass another short-term fix to give it another year to address a long-term solution. That effort would not be starting from scratch because Congress laid the preliminary groundwork for action earlier this year.

The stalemate over raising the debt ceiling derailed those efforts, but they could resume next year, he says.

U.S. Rep. Jeb Hensarling (R-Dallas) is cochair of the super committee. Dr. Curran lives in his district and talked to Representative Hensarling about the SGR. He says he was assured that there would be something done to at least delay the impending 29.5-percent cut for another year or two.

Mr. Whitehurst also said that panel might consider some federal medical liability reforms that could save money in Medicare by reducing the practice of defensive medicine.

The bad news is that failure of the committee to recommend the full $1.2 trillion in spending cuts could trigger automatic 2-percent cuts in physician and other Medicare provider rates beginning in 2013. Congress mandated those cuts in the debt ceiling deal.

Taking flight

At a minimum, Representative Burgess is convinced Congress will not let the 27.4-percent cut happen. But the results of TMA's survey indicate the damage may already be done.

TMA conducted the survey in August, and 1,906 Texas physicians described the impact of a 29.5-percent cut or a "compromise" 10-percent cut on them and their patients.

Fifty percent of respondents said they would consider opting out of Medicare if the 29.5-percent cut occurred. What's worse, 3 percent said they already had opted out and 10 percent said they would opt out.

In addition, 41 percent said they would consider taking no new Medicare patients, 31 percent said they would consider limiting the number of new Medicare patients they see, and 27 percent said they would consider limiting the number of Medicaid patients in their practice. Between 8 percent and 32 percent said they already had taken one or more of those actions and between 22 and 43 percent said they will take one or more of those actions.

Physicians' gave similar responses to a 10-percent Medicare payment cut. Forty-eight percent said they would consider new limits on acceptance of Medicaid patients, 42 percent said they would consider limits on new Medicare patients, 35 percent said they would consider reducing charity care, and 52 percent said they would consider opting out of Medicare altogether.

"In the end, this is going to hurt both Medicare and Medicaid," Dr. Curran said. "As a practicing physician who has to keep the lights on, the water running, and your employees insured and paid a reasonable amount, you've got to be sure that you build your practice in such a way that you can meet those expenses."

That means physicians increasingly will focus on patients with private insurance. In urban areas, Medicare and Medicaid patients likely will go to county hospitals, but that option doesn't exist for rural physicians who "see all comers," he said.

"For us old codgers who are reaching the point where we've got to begin recruiting young physicians to replace us, we're not going to have the capital, the necessary patient volume, and the patient mix to be attractive for a young physician to want to come out here and work."

 The MedPAC recommendation would devastate access for seniors, military families, those with disabilities, and the poor, Representative Burgess says. He says a freeze is just "a cut by another name" because the cost of running a medical practice will continue to increase.

"The growing frustration within the physician community with the way they've been treated by their partners in the federal government has reached a point where it's not that they don't want to do the work, but that it's no longer possible," he added. "Let's be honest, for a significant number of doctors out there, if you go five years with continued pain in the system, they're simply going to find something else to do."

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.

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