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Outlook
The Medicare Fee Schedule: Where It Stands Now
By William L. Rich III, MD, Academy Medical Director for Health Policy
 
 

As you know by now, in an “11th hour” move last December, Congress narrowly averted a 10.1 percent cut in physician Medicare payments scheduled for Jan. 1, 2008. There is a 0.5 percent increase in the conversion factor for the first six months of this year, plus a full-year 1.5 percent bonus for those who participate in the Medicare Physician Quality Reporting Initiative (PQRI). As we go to press, the Academy, AMA and others are rallying around a bill introduced by Sen. Stabenow (D-Mich.), who is a member of the Senate Finance Committee. It calls for an 18-month Sustainable Growth Rate (SGR) fix for physicians, continuing the 0.5 percent update for the rest of 2008 and a 1.8 percent update in 2009.

This yearly congressional dance resulting in freezes or minimal increases in physician payment—failing to keep pace with practice costs—is patently unfair and ultimately not the wisest public policy. Three basic forces underlie this state of affairs: differing political philosophies of health care financing, inadequate financial resources, and challenges in political leadership.

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Political Philosophy

Democrats consider Medicare a social responsibility and a defined benefit for those who are eligible, who have paid into the system for years while working and now pay a monthly premium. They support Medicare Fee for Service (FFS), which is the choice of 85 percent of Medicare beneficiaries, has an administrative overhead of 1.5 percent and gets the highest approval rating of any government program.

Republicans would like to change Medicare from a defined benefit to a defined contribution. In order to limit the government’s financial liabilities and micromanagement and to control growth, as the Medicare population doubles by 2040, a Republican administration has subsidized the private insurance industry to develop new Medicare private managed care options (Medicare Advantage). These subsidies pay 13 percent to 18 percent more than what is expended on Medicare FFS patients, who actually tend to be sicker than Medicare Advantage patients. The problem for physicians is that these Medicare insurance products historically pay 75 percent of Medicare FFS. The Republicans’ strong support for private sector options over Medicare FFS may well be the rationale for the administration’s lack of effort for any permanent Medicare fee fix.

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Health Care Financing

Since 1993, Congress has mandated that CMS establish spending targets for the payment of physician services. CMS must update the conversion factor for Part B payments using the SGR formula, which assumes that if the yearly growth of services per beneficiary exceeds the GDP-related target figure, physician payments must be lowered in the following years to offset “overpayments” in past years and assumed overspending in current and future years. Because the SGR includes Part B drugs and imaging, which are growing at double-digit rates, 34 percent cuts in physician payments are expected by 2012. The administration has refused to make cuts in high-end imaging despite the recommendations of the Medicare Payment Advisory Committee and AMA/Specialty Society Relative Value Scale Update Committee. It also has refused to take drugs out of the SGR. This is unsustainable. The Academy has lobbied for the elimination of the SGR, calling instead for yearly updates to physician payments tied to medical inflation. The price tag to eliminate the SGR is more than $300 billion. This is real money, even in Washington. It must be financed through tax increases, increases in beneficiary fees, paying less for some services (lab, imaging, drugs) or reordering spending priorities in Congress—not likely in an election year.

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Challenges in Political Leadership

In the first session of the 110th Congress, new Democratic-controlled House passed extensive Medicare reform that would have eliminated the SGR, set up separate spending targets/ conversion factors for different types of services and more. This reform would have been financed through increases in tobacco taxes and removal of the massive payment subsidies given to Medicare Advantage plans. The proposal never made it through the Senate, and President Bush’s veto threats torpedoed even more modest reforms as well. In the end, the Democratic leadership was only able to advance the six-month solution, which pleased nobody but was passed with a voice vote.

What can we expect in the future? Another reform effort by the House, and if the Democrats attain a filibuster-proof 60 seats in the Senate, there is little doubt Medicare reform will pass at the expense of Medicare Advantage subsidies. The pressure to ensure realistic but controlled funding of Medicare and to limit the rate of growth of physician services is not going away. Without some political leadership, however, physicians will continue to be caught in this ongoing philosophical debate that has stymied payment reform.

Ophthalmologists and the Academy must be vigilant during the coming months when decisions will be made affecting the very viability of our profession. Please be sure to respond to our requests to make yourself heard in Congress, so that we may influence the long-term restructuring of the Medicare system.
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For more news on the SGR, see Washington Report, page 87.

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