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Medicare will cut your pay--unless Congress intervenes


Organized medicine is seeking a legislative solution to prevent a dramatic drop in reimbursement rates next year.



Medicare will cut your pay—unless Congress intervenes

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Choose article section...How a projected increase translates into a loss CMS' side of the story—and organized medicine's rebuttal

Organized medicine is seeking a legislative solution to prevent a dramatic drop in reimbursement rates next year.

By Gail Garfinkel Weiss
Senior Editor

If you've been feeling a bit down lately, wait until you see the Medicare Physician Fee Schedule for 2002. After two years of modest increases, payment rates to physicians are slated to drop 5.4 percent. Physicians' only hope now is for Congress to step in to replace the enigmatic formula used by the Centers for Medicare & Medicaid Services (formerly HCFA) to determine Medicare fees.

Legislation to do just that was introduced in the Senate by Vermont Independent Jim Jeffords on Nov. 8. The bill, co-sponsored by Louisiana Democrat John Breaux, would also limit the reduction to 0.9 percent.

The current fee update formula resulted from the Balanced Budget Act that was passed by Congress in 1997 and went into effect in 1998. Organized medicine has considered it flawed from the beginning.

The key point of contention: The formula is based on the "sustainable growth rate," which takes into account not only Medicare fee-for-service enrollment, variations in fees for physician services, and changes in spending resulting from new laws or regulations, but also fluctuations in the gross domestic product. So when GDP falls, as it did this year, Medicare payment rates for the following year get socked—even if practice expenses rise.

"This presents a very real problem for physicians, particularly those in rural areas who treat many Medicare patients," says AAFP President Warren A. Jones. "We're not talking about doctors looking to make payments on yachts or private airplanes. This is about keeping nursing staff, office staff, and adequate equipment and supplies to take care of patients."

A 5.4 percent cut also bodes ill for Medicaid reimbursement in the states that tie those fees to the Medicare formula, adds AMA Chairman Timothy T. Flaherty. Moreover, private insurers are likely to follow the CMS lead, he says, further eroding physician reimbursement. Flaherty is hoping for a congressional fix that "considers actual practice expenses from previous years and factors in real inflation numbers."

The Jeffords bill doesn't offer that kind of relief, though. In addition to specifying the 0.9% reduction, it would simply have the Medicare Payment Advisory Commission (MedPAC) "conduct a study on replacing the use of the sustainable growth rate as a factor" in calculating future Medicare payment rate updates.

How a projected increase translates into a loss

When CMS released its Medicare "final rule" on next year's fees on Nov. 1, the agency indicated that "total payments to physicians and other nonphysician practitioners under Part B of Medicare are projected to increase 1 percent in 2002, from $41.2 billion . . . to $41.7 billion."

The rule provides for a nearly 17 percent increase in payments for screening mammography. And beginning Jan. 1, Medicare will cover "glaucoma screenings for persons . . . who are at high risk for contracting the disease, and medical nutrition therapy for those with diabetes or renal disease."

No one in organized medicine is celebrating, though. Of far greater interest was this announcement: "The factor used to update payment rates for individual services will go down by 4.8 percent, and the conversion factor will be still lower (5.4 percent below 2001 levels)."

The 4.8 percent drop is based on the sustainable growth rate. But to figure the conversion factor—the number that will be used to determine your Medicare fees for next year—CMS, as required by law, takes into account a "budget neutrality adjustment" and a "behavioral offset."

The rationale for the budget neutrality adjustment is that CMS can't make changes that will cause total expenditures under the Medicare physician fee schedule to increase more than $20 million. If it's projected that that amount will be exceeded, additional changes must be made to balance out the initial changes. The behavioral offset is based on the assumption that physicians will try to neutralize fee reductions by working harder. To compensate for that, fees are further reduced.

The conversion factor resulting from these mathematical manipulations was $38.2581 for 2001, but will drop 5.4 percent (4.8 plus 0.6 for the other two components), to $36.1992 for 2002.

Physician services are the only category of services subjected to this formula. Reimbursements to hospitals, laboratories, nursing homes, and other services are calculated differently.

The four-year phase-in of resource-based practice expenses also culminates in 2002. In general, resource basing—which considers real costs for equipment, administrative overhead, and staff, as opposed to traditional charges—has boosted primary care doctors' fees and held down those of specialists. But according to Richard Trachtman, director of congressional affairs for the American College of Physicians-American Society of Internal Medicine, "every physician specialty and subspecialty is being hurt by the across-the-board reduction of 5.4 percent."

CMS' side of the story—and organized medicine's rebuttal

"The law designing the physician update is incredibly prescriptive," says CMS Administrator Tom Scully. "It gives us no flexibility in adjusting this multiyear formula." A CMS press release also indicates that between 1998 and 2001, the update formula worked well for physicians: The cumulative fee increase was 15.9 percent, compared with a medical inflation increase of 9.3 percent.

The barons of organized medicine have been crunching different numbers. In a letter to Sens. Jeffords and Breaux, ACP-ASIM President William J. Hall says that regulatory mandates—including patient safety, quality improvement, needlestick prevention, and privacy protection programs, as well as Medicare documentation demands—"although well-intended, have been imposed with little apparent regard to the resources necessary for practitioners to comply. . . . In the face of these increasing demands, physician payments have increased an average of only 1.7 percent per year since 1991. Since then, payment levels have dropped 13 percent behind medical practice cost inflation."

Richard Trachtman and others also disagree with CMS' contention that its hands are tied. "The medical profession has made recommendations to CMS and the Department of Health and Human Services on things we felt they could do," he says—including correcting past miscalculations that were based on erroneous budget estimates.

But, Trachtman adds, "The time to hash it out with CMS has, unfortunately, passed. They've done what they feel they have to do, so we have to respond to that."


Gail Weiss. Medicare will cut your pay--unless Congress intervenes. Medical Economics 2001;24:19.

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