Medicare Payment Proposal Could Put Hospitals on Critical List
The controversy came about because application of the payment formula resulted in a reduction of 5.4 percent in Medicare’s 2002 reimbursement rates for physicians.
“We have no compelling evidence that there is a problem with the overall adequacy of provider payments,” wrote Health and Human Services Secretary Tommy Thompson and Office of Management and Budget Director Mitchell Daniels Jr. in a March 15 letter to Rep. William Thomas (R-Calif.), chair of the House Ways and Means Committee, and Rep. Nancy Johnson (R-Conn.), chair of the Ways and Means Health Subcommittee.
Thompson and Daniels proposed that increases to physicians be offset by “savings from. . .measured changes in hospital payment updates.”
The impetus for the letter was a request from Thomas and Johnson that the administration advise Congress on what cuts could be made to allow increases for physicians and still maintain budget neutrality.
According to the March 20 Congress Daily, Johnson expressed displeasure with the Thompson letter, saying she had hoped that the administration would send “the kind of laundry list administrations in the past have come up with” to allow lawmakers “to pick and choose” the areas in which offsetting cuts would be made.
In a response dated March 26 to the administration’s proposal, a coalition of eight organizations representing hospitals wrote, “More than half [the hospitals] lose money treating Medicare patients. Fully one-third are losing money overall. And, without corrective action, $21 billion in additional reductions will be implemented by October 1, 2002.”
Among the cuts mentioned were $1.4 billion in hospital outpatient payments scheduled to take place April 1 and a reduction of $4.2 billion in payments to teaching hospitals, scheduled to take place October 1.
In terms of the payment formula itself, Thompson and Daniels wrote, “While a formula that produces these payment fluctuations year to year should be reviewed, the underlying system is sound and effective.”
MedPAC Proposal
In March the Medicare Payment Advisory Commission (MedPAC), an independent advisory group to Congress, issued a report reiterating a previous recommendation for a change in the physician update formula. The report noted that use of the formula causes large swings in updates from year to year that are unrelated to changes in the cost of furnishing physician services. Payment updates were +5.4 percent, +4.5 percent, and -5.4 percent for 2000, 2001, and 2002, respectively.
An inherent problem in the current formula, according to MedPAC, is the linking of updates to growth in the national economy, rather than to the cost of efficiently providing physician services.
In addition, the formula applies only to physician services, exacerbating Medicare’s problem of paying different amounts for the same service depending on whether the service is provided in a physician’s office, a hospital outpatient department, or an ambulatory surgical center.
MedPAC recommended that the update be based on an estimate of the change in input prices for the coming year and that Congress be able to adjust the estimate using evidence on whether the current level of payments is adequate. No such flexibility is possible in the application of the current formula.
MedPAC recommended an update of 2.5 percent for physician payments in 2003, but declined to recommend recision of the 2002 cut of 5.4 percent.
The report noted that it is difficult to determine whether the current and proposed rates are adequate because the most recent year for which the Centers for Medicare and Medicaid Services (CMS) can furnish data about access to care is 1999.
Response From Medical Associations
The AMA began running the advertising campaign “Code Red” in February, with the message that a “dumb Washington, D.C., rule is forcing doctors to stop taking new Medicare patients.”
“Quotes,” a second ad campaign, began in March. That campaign consists of quotes from the March 17 New York Times from physicians about the financial problems of treating Medicare patients.
In a press release, the AMA claimed, “Without immediate attention, the future of Medicare payment is bleak. After this year’s 5.4 percent cut, we expect a 5.7 percent cut in 2003, another 5.7 percent cut in 2004, and a 2.8 percent cut in 2005.”
Jay Cutler, J.D., director of APA’s Division of Government Relations, told Psychiatric News, “The negative payment update problem is particularly acute for psychiatrists, who must also contend with Medicare’s discriminatory 50 percent copayment requirement for psychiatric services.” APA has long been fighting this unfair provision.
Last December APA joined more than 40 other medical associations to support the Medicare Physician Payment Fairness Act of 2001 (HR 3351 and S 1707) (Psychiatric News, December 7, 2001).
Passage of the act would trim the decrease in physicians’ reimbursement rates from 5.4 percent to .9 percent in 2002 and require MedPAC to conduct a study about the effectiveness of the current formula.
The legislation is sponsored by 331 representatives and 74 senators, but it has not reached the floor of either chamber for a vote.
The Web site of MedPAC is www.medpac.gov. The text of the Medicare Physician Payment Fairness Act of 2001 can be accessed at http://thomas.loc.gov by searching on “HR 3351” or “S 1707.” ▪
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Published online: 3 May 2002
Published in print: May 3, 2002
Notes
Hospitals will lose if cuts in payments to Medicare physicians are rolled back, according to a proposal by the Bush administration.
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