Threat of Medicare Cuts Galvanizes Reform Push

Physicians would have their fees under Medicare cut by an average of 9.9 percent in 2008, and even larger cuts could apply to psychiatrists, according to a July Medicare announcement and APA staff. The lower value Medicare gives to some psychiatrists' services makes them more vulnerable to cuts than other type of services.

The proposed changes result from the complex payment formula established by Congress in 1998, which was intended to reduce government spending. Predictions are that applying the formula will require cuts of nearly 40 percent over the next eight years. Medicare's payment system does not include allowances for increases in physician costs, including office leases and malpractice insurance.

The Centers for Medicare and Medicaid Services (CMS) is required to adjust the fee schedule depending on how actual expenditures of the last completed fiscal year compare with a target rate, known as the sustainable growth rate (SGR). The SGR is based on medical inflation, projected growth in the domestic economy, projected growth in the number of beneficiaries in the Medicare fee-for-service program, and changes in law or regulation. If actual spending exceeds the SGR, CMS must reduce most reimbursement levels.

Physician organizations, including APA, are working to avert the latest announced cut. Congress averted a previously scheduled 5.1 percent overall physician payment for 2007 through legislation passed last year.

“We have worked successfully with the AMA and others to block previously scheduled physician payment updates,” said Nicholas Meyers, director of APA's Department of Government Relations. Congress has intervened to prevent the Medicare reimbursement cuts required by the SGR formula for the last five years, said acting CMS Administrator Leslie Norwalk, in a prepared statement. “CMS will continue working with Congress as well as physician groups to identify payment methods that help improve the quality and efficiency of care in a way that is cognizant of the costs to taxpayers and to Medicare and its beneficiaries.”

APA and other physician groups have pushed for replacement of the SGR with a system that takes rising physician costs into account when calculating physician payments. Even the most recent payment freeze allowed reductions in Medicare payments for many psychiatrists, due to a periodic technical assessment by CMS officials of the services physicians provide.

Future adjustments could be similarly affected, based on the clinical-activity-based payment system Medicare uses, according to APA staff who follow the issue.

“There is now clear interest in Congress in dealing with the SGR problem once and for all,” Meyers said. “We see a window of opportunity to get congressional action on a variety of efforts to improve the long-of these payments.”

The leaders of Senate and House committees with jurisdiction over the SGR formula have expressed interest in identifying permanent improvements to the payment formula that will obviate the need for annual congressional action.

Congressional leaders in the House said during Medicare hearings in the spring that they plan to avert most of the physician payment cut, but that some payment reduction may be needed to help fund Democratic policy priorities that include expanded coverage for uninsured children and more generous subsidies to low-income beneficiaries in the Medicare drug benefit program.

The AMA released a member survey at the same time the planned physician fee cuts were announced reporting that 32 percent of physicians would accept fewer new Medicare patients if payments were slashed by nearly 10 percent, and 28 percent said they would stop accepting any Medicare patients.

The Medicare Payment Advisory Commission (MedPAC), an independent body that advises Congress on Medicare issues, recommended in March that Congress make a range of changes to the program to avoid the planned 10 percent cut in Medicare's 2008 physician payments. MedPAC instead recommended that Medicare increase the payments by 1.7 percent to reflect the growth in health care costs. This would cost about $2 billion in the first year and up to $10 billion over the next 10 years (Psychiatric News, April 6).

In April, APA and 85 other physician organizations suggested a series of administrative changes that federal health officials could implement to avert a scheduled cut in Medicare physician reimbursements (Psychiatric News, May 18). One of the actions the physician groups suggested was that CMS use all of the funds Congress placed in a special physician-fee reserve fund in 2006 to avert cuts in 2008. The Physician Assistance and Quality Initiative Fund of $1.35 billion, was created by legislation that averted the 5 percent cut that was scheduled for 2007. The fund is earmarked for physician payment and quality-improvement initiatives and to extend voluntary quality reporting bonus payments into 2008.

Norwalk's statement also said CMS officials hope to improve quality and efficiency through expanded use of the Physicians Quality Reporting Initiative, a CMS program begun July 1 that provides a 1.5 percent bonus for physicians who successfully report meeting a designated set of quality measures for certain services.

The proposed changes were published in the July 12 Federal Register. Comments will be accepted on the proposed payment change until August 31, and final regulations needed to implement it will be published in the fall so that the rate change can go into effect for services on or after January 1, 2008.

A copy of the CMS announcement is posted under July 2 at<www.cms.hhs.gov/apps/media/press_releases.asp>.▪