What Medicare Reform Means to You: Fees Are Raised, Patients' Access to Care Is Preserved

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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 treatment.

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.


For Web sites with information about Medicare, see this month's MedBytes .  

"The first thing that was accomplished was to assure patient access to physicians by adequately eimbursing physicians," Dr. Rohack said.

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 adds.

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 doctor.

"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 uncertainty."

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 services.

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 three years.

"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 the bill.

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 voluntary.

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 state.

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 2006.

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.

HSAs Allowed  

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 is spent.

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 system.

"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 system.

"That may create some pressure on traditional Medicare providers. It may force them to offer bells and whistles," Dr. Foxhall said.

 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.

Quo Vadis?  

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 administrative costs."

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 overhead.

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 time." 


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 advocate."

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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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