Medicare Fees Headed for Huge Cuts

Heads up—fees for physicians in the Medicare program are headed down again next year.

Physicians treating patients in the Medicare program will receive on average 9.9 percent less pay in 2008 if a proposed rule by the Centers for Medicare and Medicaid Services (CMS) is approved and Congress fails to step in as it has in past years to avert the pay cut.

Nonetheless, even if Congress should act to suspend the 9.9 percent cut in the “conversion factor”—that component of the Medicare payment formula whereby estimates of work, practice expense, and other values are converted into a dollar figure—fees will likely drop somewhat because of other changes in the formula designed to ensure budget neutrality.

The overall average payment to psychiatrists for 2008 is expected to drop by 9.9 percent, though payment to individual psychiatrists could be more or less depending on individual practice and coding patterns, according to APA's Office of Healthcare Systems and Financing.

The payment reductions are part of a proposed rule published in the Federal Register earlier this summer detailing changes in the elaborate formula by which the government calculates the Medical physician fee schedule. (For a description of the formula see You'll Be Sorry You Asked!).

APA has filed extensive comments with CMS about the proposed changes (see APA Urges Government to Revamp Medicare Payment System). As in past years, the projected decrease has resulted in vigorous protests from physician groups.

“The proposed 2008 Medicare physician payment rule serves as yet another reminder of the need for congressional action to stop scheduled payment cuts to physicians,” said AMA board member Cecil Wilson, M.D.“ Next year alone, Medicare will cut payments to physicians by 10 percent. Over nine years the cuts swell to 40 percent, while medical practice costs increase 20 percent. The numbers just don't add up.

“Today, Medicare pays doctors the same as it did in 2001. More than 60 percent of doctors say they will be forced to limit the number of new Medicare patients they can treat when the cut goes through. Seniors' access to health care is in jeopardy.”

CMS is required to adjust the fee schedule up or down each year 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, then CMS must reduce the update and most reimbursement levels, typically by adjusting the conversion factor downward.

This year, the SGR has resulted in a projected overall decrease in payment of 9.9 percent.

The SGR has been the object of vehement protest from APA and the AMA because—among other shortcomings—it fails to take into account increasing practice costs. In lieu of scrapping the SGR entirely, which continues to be a principal advocacy goal of the AMA, physician groups have relied on Congress to step in with legislative fixes to maintain or increase physician spending. But the yearly tussle over Medicare fees masks a problem that will not be remedied by short-term legislative fixes: as utilization increases and medical capacity expands, costs invariably increase; in a public program such as Medicare, new revenue can come from only one source—taxpayer dollars.

Moreover, since the fee schedule is legislatively mandated to remain“ budget neutral,” an increase in any sector of the program or any component of the payment formula must be compensated for by decreases elsewhere.

Earlier this year, for instance, the AMA's RVS Update Committee called for a 14 percent increase in work and practice expense relative value units in the payment formula for anesthesia codes; with the 9.9 percent decrease in the conversion factor, that leaves an average increase in fees for anesthesiology services of 4 percent.

Last year, to compensate for similar increases in utilization and fees for certain services for 2007, CMS instituted a separate “work adjuster” to be applied to the work RVUs. And this year, to accommodate the increase in anesthesiology fees, that work adjuster was moved downward—thereby diminishing fees for other specialties.

Physician groups have cried foul and argued that the budget neutrality adjustment should be spread across all RVUs, not just the work values, to lessen the impact. This is especially important for psychiatry since work values for psychiatry codes account for as much as 75 percent of the codes' values, according to APA's Office of Healthcare Systems and Financing.

Ultimately, what this means is that fees are very likely to diminish at least somewhat even if Congress should intervene to stop the 9.9 percent decrease in the conversion factor.

“The work values are an issue for many medical specialties but ever more so for psychiatry because the practice expense fraction of the value of our codes is relatively low,” said Ron Burd, M.D., chair of APA's Committee on RBRVS, Codes, and Reimbursements and APA's representative to the AMA RVU Update Committee. “We are implementing plans to have psychiatry's work values reviewed and appropriately reevaluated.”

APA Director of Government Relations Nick Meyers said the Association is working closely with the AMA on a permanent fix to the problem of the SGR.

“The AMA has done a great job of leading the effort to avert cuts from year to year, and it will be a big win for all physicians if we're able to replace a nearly 10 percent reduction in the update factor with a one-half percent positive update,” Meyers told Psychiatric News.“ It's safe to say APA and all of medicine wants to secure a fair and permanent resolution to the update rather than having to go back to Congress year after year asking for a postponement, but even that's no guarantee that it will translate into a real dollar increase in Medicare payments due to the underlying budget neutrality requirements.

“That's the box that physicians and other health professionals are in when it comes to Medicare, particularly for cognitive specialists like psychiatrists, whose services are typically defined by a unit of time,” Meyers said.

The prospects for physician payment in 2008 remain fluid and can be affected by adjustments to the proposed rule, Congressional action, and other factors. APA members are advised to contact the Office of Healthcare Systems and Financing and to look for further updates in Psychiatric News.

The entire text of the CMS proposed rule can be found online at<www.access.gpo.gov/su_docs/fedreg/a070712c.html>.▪