Medicare Doctors Face Pay Cut—Again

Senate passes measure but "doc fix" must go to House

by Patricia Barry, AARP Bulletin, Updated June 18, 2010 | Comments: 0

A cliffhanger that has played out in Congress over recent weeks came to a denouement of a kind today when the Senate finally acted to stave off a scheduled 21 percent cut in Medicare payments to doctors. It postponed the cut for six months and increased payments by 2.2 percent for that period. But the cut has already gone into effect and cannot be lifted unless the House of Representatives votes to endorse the Senate bill. A vote is expected next week.

The Senate development disappointed physicians who wanted a longer delay, and it did little to ease consumer fears that more doctors will stop taking Medicare patients while they remain uncertain whether the pay cuts will again be postponed at the end of the year. “Congress is playing Russian roulette with seniors’ health care,” AMA President Cecil B. Wilson, M.D., said in a statement today. “Already the instability caused by repeated short-term delays is taking its toll.”

The situation affects not only physicians but also millions of patients enrolled in Medicare and TriCare, the health program for military families that ties its payment rates to those of Medicare. A series of Band-Aid solutions "creates a dangerous atmosphere for seniors and their doctors," says AARP Executive Vice President Nancy LeaMond. “Finding a physician is already a challenge for older Americans."

Cuts go into effect

The massive pay cut was supposed to kick in Jan. 1, but was postponed until June 1. Just before the Memorial Day weekend, the House passed a bill that would delay the cut for 19 months, but the Senate failed to act. The Medicare agency then used its administrative authority to freeze payments to doctors through June 17 to give Congress more time to avert the cuts. When that grace period expired yesterday, Medicare began processing doctors’ claims at a rate that reflects the 21 percent pay cut. This will continue, officials say, until the House acts.

This “doc fix” scenario, as it’s called in Washington, has occurred every year for nearly a decade. Under a law passed in 1997, Medicare rates for physicians and other providers are calculated under a complex formula that was designed to curb the growth of Medicare costs, but later resulted in cuts so unpopular that Congress has annually postponed them. The legal requirement remains, however, swelling the cuts cumulatively to reach 21 percent this year.

Physicians say that even with Congress enacting this latest fix, it will not necessarily prevent doctors from limiting the number of Medicare patients they treat or opting out of the program altogether unless the current payment formula is repealed. President Obama has also called for a permanent fix. Doctors “shouldn’t have this guillotine hanging over their heads every year,” he told a town hall meeting of seniors last week.

Doctors limit Medicare patients

Nearly one-third of primary care physicians say they have already been forced to cut back on the Medicare patients they see, according to a recent survey of 9,000 doctors conducted by the American Medical Association. More than eight in 10 said it was because of the ongoing threat of future payment cuts.

That threat creates a “financially unstable situation” that affects a typical primary care practice in many ways, says Fred Ralston Jr., M.D., president of the American College of Physicians. “It’s difficult to recruit new doctors, it’s horrible for morale, and it’s harder to borrow money to invest in improvements for your practice when the possibility of having the rug pulled out from underneath you is always there,” he says.

Ralston, an internist in Fayettesville, Tenn., with 2,000 patients—three out of four of them on Medicare—says that the economic impact of a 21 percent pay cut would be devastating. Many primary care practices now have overhead costs that can range up to 67 percent, he says, but the cut would apply to gross revenues. So, for example, a current Medicare payment of $1,000 minus $670 overhead results in $330 left for income. A 21 percent cut, however, would slice off an additional $210 from the gross, leaving $120 for income. “So the net reduction in the salary is 64 percent, not 21 percent,” Ralston says. “For any practice now teetering, just the threat of that happening might be enough to throw it over the edge.”

Continuing cuts also deter new medical graduates from entering primary care, contributing to a shortage of family doctors that is already critical.

The American Medical Association has consistently held out for repeal of the payment formula, rejecting an earlier proposal from Democratic leaders to postpone the cuts for five years. Other groups and many members of Congress have also called for a permanent fix.

“Congress would repeal the formula if they didn’t have to pay for it,” says John Rother, AARP’s director of policy. “But under budgetary rules it has to be offset, and nobody knows how to offset a cost that large without imposing a new tax or disrupting some other part of health care.”

AMA president J. James Rohack, M.D., argues that repeated postponements have only worsened the cost of repeal. “In 2005, physicians faced a cut of about 3 percent and the cost of permanent reform was $49 billion,” he said last week. “This year, the cut has reached a staggering 21 percent and the cost of reform has more than quadrupled to $210 billion.”

Band-Aid, not a cure

Meanwhile, the Band-Aid approach “undermines confidence in Medicare on the part of both providers and patients,” says Rother. “The current payment formula is not doing what it was designed to do, so we should replace it with something else.”

The consensus of health policy experts is that Medicare’s current fee-for-service system—in which doctors are paid separately for each service they provide—should be replaced with a system that rewards quality of care and outcomes as a way to reduce the program’s spiraling costs. Some medical centers, and pilot programs in Medicare, have already demonstrated that this can work, and the new health care law takes steps in that direction. But to achieve it on a national scale, Rother adds, “is going to take a while.”

Patricia Barry is a senior editor at the AARP Bulletin.