Can This Congress Act Again to Stop Deep Medicare Cuts to Physicians?

One of the things that makes the Medicare program so complex is that it was enacted only after long years of congressional wrangling and has forever after been subject to the whims of political compromise. The various interested parties in the Medicare program — doctors, hospitals, nursing homes, home health agencies, hospices, medical suppliers, pharmaceutical companies, pharmacies, not to mention Medicare beneficiaries themselves — all have a stake in the success of the program. But the program’s future ultimately is in the hands of members of Congress, who are beholden to Medicare stakeholders for campaign contributions and votes, but are also not averse to use the program to score political points, especially in an era of fiscal austerity.

Because the federal government provides such a significant amount of the financing for U.S. health care–through Medicare, Medicaid, tax breaks for employers who provide health insurance to their employees, and by financing much of the training of the next generation of physicians–and because U.S. health care spending increases in most years before the recent recession have outpaced inflation, reining in Medicare spending  has been one of the primary goals of some members of Congresses.

Take one example — payments to physicians.  Since 1992, physicians for the most part have been reimbursed through the Medicare physician fee schedule, where payments are calculated using national uniform relative value units (RVUs) based on the relative resources used in furnishing a service. Before the fee schedule went into effect, physicians were paid based on “reasonable charges.” The fee schedule was put in place because of congressional concerns about imbalances in payments between different types of procedural services and evaluation and management services and across different geographical areas.

The payment for a particular physician service under the fee schedule is determined by multiplying the RVU by a geographical adjustment factor and then by a conversion factor. The conversion factor ultimately is the deciding element as to whether physician payments rise or fall each year. Since 1999, the key component of the conversion factor is the sustainable growth rate (SGR). The SGR is determined annually by calculating the percentage change in fees for all physician services, in the number of Part B beneficiaries, in the U.S. gross domestic product, and in total physician expenditures due to changes in law or regulations. The Congressional Budget Office explained that the SGR “aims to control spending for physicians’ services provided under Part B of Medicare … by setting an overall target amount of spending (measured on both an annual and a cumulative basis) for certain types of goods and services provided under Part B.”

 Congress got what it wanted when it implemented the SGR — since its inception, payments to physicians would have been less in each year compared to the year before. In effect, however, physicians have never faced a Medicare payment cut because each year since 2003 Congress has intervened to postpone a given year’s payment cut, and has sometimes provided physicians with a payment increase for the following year.

The problem is that the SGR impact is a cumulative one, as long as the SGR is part of the statutory formula for determining Medicare physician payments.  For example, physicians faced a 21 percent reduction in Medicare payments in 2010. Congress passed a variety of stop gap measures in 2009 and 2010, however, that not only blocked that payment reduction, but actually provided physicians with a 2.2 percent increase in payments, which extended to the end of 2011.

Early in 2011, CMS estimated that Medicare physician payments would be cut almost 30 percent as of January 1, 2012. In the final rule for the physician fee schedule, released by CMS on November 1, this reduction was reduced to “only” a 27.4 percent 2012, because Medicare cost growth has been lower than expected in 2011. CMS noted, “While Congress has provided temporary relief from these reductions every year since 2003, a long-term solution is critical. We will continue to work with Congress to fix this untenable situation so doctors and beneficiaries no longer have to worry about the stability and adequacy of their payments from Medicare under the Physician Fee Schedule.”

Although Congress has acted in time for almost 10 years to undo reductions which it has, in effect, mandated by law, the combination of this past summer’s brinkmanship regarding raising the debt ceiling combined with the upcoming presidential election means that all bets are off regarding how Congress will act this year.

The biggest problem that Congress faces is that temporary fixes only delay the inevitable — the Medicare Payment Advisory Commission (MedPAC) has estimated that simply freezing physician payments for 10 years would cost about $300 billion, based on budget projections under current law. Also, any congressional negotiations over a possible “doc fix” for 2012 will be happening at the same time as the bipartisan “super committee” on the budget deficit will be releasing their recommendations for budget changes, which may impact Medicare.

It promises to be an interesting two months.