Medicare payment -- past, present, future: Promise and challenges

Despite the big money problems that sit in the way, physicians are trying to look at what lies beyond repairing the Medicare pay system. Last in a 3-part series.

By — Posted Oct. 9, 2006

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Like many physicians, Richard B. Warner, MD, is eager for policy-makers to fix what's wrong with Medicare so doctors can get back to focusing full time on what's right with the program.

"We may all wish for a higher level of remuneration for what we do, but there's no doubt that Medicare has allowed physicians and their patients to chart a good course for the patients' treatment," said Dr. Warner, a psychiatrist from Overland Park, Kan., and Kansas Medical Society president. "For most of its time, it really has given patients the freedom to choose where and how they receive their aging care."

But stagnant federal reimbursements, the constant threat of rate cuts, increasing practice costs and heightened strains on time are convincing some physicians to back away from the program they say has served so many seniors and patients with disabilities so well in its 41 years. Some say their dedication to the patients under the program's wing is the only reason they didn't make the logical decision to walk away from it years ago.

Instead of being able to concentrate on improving patient care and preparing for the next big generation of seniors to come, physicians must expend most of their political energy battling the next expected Medicare reimbursement cut that is almost always less than a year away, said David A. Ellington, MD, a family physician from Lexington, Va.

"We play chicken every year with the budget, and every time it goes down to the last minute before Congress comes in to fix it," said Dr. Ellington, past president of the Medical Society of Virginia, who recently traveled to Washington, D.C., as part of an American Medical Association campaign to stop Medicare pay cuts. "Then we start all over again."

Since the sustainable growth rate formula took effect in 1998, lawmakers to some degree have sided with doctors any time the system has put them in peril of a rate cut. With the exception of 2002, Congress has stepped in to block reductions by freezing or increasing payments by a percentage point or two.

But the situation is worse. Physicians went into 2006 facing the potential of annual cuts at the highest level allowed under the payment formula stretching as far as the 10-year budgetary eye could see.

This has led some frustrated and fatigued doctors to decide that the future of Medicare payment is too grim. Nearly 30% of physicians plan to decrease the number of new Medicare patients whom they will see if they receive a cut in 2007, and more than 15% say they will stop seeing new beneficiaries altogether, according to a Member Connect survey conducted by the American Medical Association in March.

Ideas for reform

Fixing the problem is a complex issue. Many lawmakers say the system is failing and that a large-scale repair of the program is necessary. The discussion about paying the bill for this, however, has not generated as much enthusiasm on Capitol Hill.

Although several lawmakers proposed long-term payment reform bills in recent years, the measures never advanced very far, in large part due to their price tags. As of late September, lawmakers once again were discussing options to address the cuts, but the likely outcome of that debate was unclear.

Physician groups, including the AMA, say Congress should connect physician payments directly to the Medicare Economic Index, a projection of how much doctors' costs of providing patient care go up each year. Medicare's reimbursement formula takes into account the MEI when calculating physician pay but lowers rates if the economy dips or physicians exceed spending limits.

But guaranteeing doctors yearly rate updates based on the growing expenses borne by their practices would come at a price. The Congressional Budget Office, on which lawmakers rely to tell them how much legislation would cost, projected that scuttling the current payment formula and giving doctors a percentage increase equal to the MEI each year would run more than $200 billion over 10 years.

With the first wave of baby boomers beginning to hit Medicare age five years from now, the difficult question of how to pay for reform arises, said Uwe Reinhardt, PhD, an economist at Princeton University and a former member of the panel that advised Congress on Medicare physician payment. As larger groups of people reach retirement age, fewer relative numbers of people will remain in the work force to finance the program. The situation would become even more costly if physicians continue to increase the amount of services that they provide to seniors, he said.

"Suppose now we allowed fees to grow purely at the MEI. Then, given the high volume growth we have experienced under Medicare in recent years, the annual amount taxpayers would pay physicians per Medicare beneficiary might well grow, year after year, at rates in excess of 10%," he said. "Taxpayers could then turn around and ask physicians, 'At that steep increase of payments to you per Medicare beneficiary, do the benefits you bestow on the elderly in terms of health status actually grow commensurately?' "

The AMA argues that the increase in volume is warranted, given that Americans are living longer, the rates of chronic disease are going up and the government continues to expand Medicare coverage to include more services.

Dr. Reinhardt favors reform that would compare what taxpayers pay physicians per Medicare beneficiary with what doctors receive from insurers for each privately covered patient. After accounting for the instances in which Congress replaced reimbursement cuts with freezes or updates, these two figures have grown annually at roughly the same rate in recent years -- about 6.5%, he said.

"Benchmarking the Medicare growth rate on the comparable private-sector growth rates would make sense to me," he said.

New pay concepts for a new Medicare

Physicians are holding out hope that policy-makers can get past the stumbling blocks and on their way to positive payment reform. Some are trying to look even further, pushing what they consider promising ideas for truly modernizing the Medicare payment system, rather than simply focusing on a set of numbers in a fee schedule.

Whatever method Congress might use to replace the sustainable growth rate formula, the new system would still be a formula, prone to political manipulation and with limits that some physicians would find too constricting, Dr. Warner said. So physicians need to get beyond how much Medicare pays for care and start thinking about just how Medicare pays for care, he said.

Reimbursing doctors for care coordination is a big step Medicare could take to retain overworked and underpaid physicians, said Ellen Brull, MD, a family physician from Niles, Ill. She has stopped taking new Medicare patients in part due to the significant amount of unreimbursed time she spends coordinating the care of her existing Medicare patients with specialists and other health professionals.

Some physicians also say the federal government should help pay for health information technology, such as electronic medical record systems, that would help physicians become more efficient and boost the quality of their care.

A more drastic revision of Medicare is necessary to sustain the program through the impending demographic crush, said Dr. Warner, who has been treating Medicare beneficiaries for 30 years. Transitioning the program from one of defined benefits to one of defined contributions would ensure its financial stability and its ultimate survival, he added. By knowing that they were limited in the amount of federal dollars they could spend on care over a given period, seniors would take more personal responsibility for their health care and would have a better incentive to map out the most prudent course of treatment with their physicians, he said.

Calls for linking physician payment to performance against measured standards is also gaining ground as a way to focus more on quality of care and less on the sheer volume of services. Although some view the move as a strategy to ration care and to exert more bureaucratic control over medical practice, not all doctors are opposed to the concept.

"Pay-for-performance gets a bad name, but if it truly follows the concept of improving the care that we are giving, then it's a good idea," Dr. Ellington said.

Some of the ideas for the future of Medicare payment are inspired by aspects of the past. J. Edward Hill, MD, a family physician and AMA immediate past president, said Medicare once again should allow participating physicians to "balance bill" their patients. This move would bolster flagging practices by allowing them to charge more to beneficiaries who are in a better position to pay.

Dr. Hill also said permitting physicians to set their own rate conversion factors -- which translate payment calculations into set dollar amounts for each service -- would restore a healthy sense of competition to the program that has been lacking ever since Medicare adopted the physician fee schedule.

The relative value scale still would prevent any one specialty from charging considerably higher relative rates than another, and allowing doctors leeway in how they charged patients would better encourage beneficiaries to gravitate toward the highest quality care at the lowest price, he said.

Until such bold steps are taken, Medicare will continue to frustrate physicians and fall short of its potential, Dr. Hill said.

"Right now we're seeing osteoporosis on the backbone of the health care system," he said. "And we all need to do something about that before it gets worse in the future."

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Challenges of an aging population

[download pdf]

Enrollment in Medicare Part B, which covers outpatient physician care, is expected to take off as baby boomers retire. Meanwhile caring for all of these seniors will come at a price. Medicare Part B is projected to account for a larger and larger piece of the nation's gross domestic product.

(in millions)
of GDP

Source: Medicare trustees report, March

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Hypothetical visit from Medicare future

The scenario: A 91-year-old man comes into the physician's office to receive some imaging work on his problem hip. Primary care physicians who accept Medicare have been extremely hard to find in recent years, but a concerted effort to boost reimbursements is starting to turn that around. Upon checking the patient's electronic medical record on her new computer system, the physician realizes that she will save time by forgoing a certain type of bone scan that the patient recently received from another doctor.

The encounter: The physician diagnoses a problem that will require drug treatment and physical therapy, rather than surgery. This comes as a relief to the patient, who is getting close to hitting Medicare's new yearly benefit limit. She enters the treatment information into the patient's EMR and logs in a referral to a specialist. Despite the patient's advanced age and condition, she is able to conclude the visit in less time than she would have 10 years ago.

The payment: Medicare reimburses the doctor based on an index that tracks how fast physician expenses are rising over time. The final payment is higher than average because the program's quality reporting agency has determined that the doctor met required standards, including conducting cholesterol and prostate cancer screenings on Medicare patients. The extra money she gets is part of the program's pay-for-performance initiative, which pays bonuses to physicians who hit all of Medicare's quality and efficiency targets.

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