Government

Annual Medicare trustees report issues dire forecast for Part B

The problem needs a comprehensive, long-term solution that includes a stable payment system for physicians, the AMA says.

By David Glendinning — Posted May 14, 2007

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Spending on Medicare outpatient services will grow at an alarming rate in the coming years -- a financial picture that would worsen if Congress acts to prevent several years of predicted physician reimbursement reductions, according to a new report from Medicare trustees.

Allowing the payment cuts to stand, however, is not an answer, said AMA Board of Trustees Chair Cecil B. Wilson, MD.

"Lawmakers must stop looming Medicare physician payment cuts to ensure seniors have access to care in the short term and start working toward innovative long-term reforms for the entire program," he said.

Under current law, Part B spending will increase by a projected average of 6.6% annually over the next decade, in large part due to increased utilization of physician services, the annual report from the program's caretakers predicts. This means that Medicare expenditure growth will outpace the U.S. economy as a whole, which is expected to grow an average of 4.8% per year in the same period.

But this outlook assumes that Medicare will slash physician reimbursements across the board by nearly 10% in 2008 and by about 5% per year for most of the next decade. The trustees expect Congress to step in long before this happens.

"More than nine years of significant reductions in physician payments per service are very unlikely to occur before legislative changes intervene," they said in their report, released April 23.

If lawmakers continue to override scheduled physician cuts, as they have every year since 2003, spending on doctors' services and other Part B benefits will follow a more worrisome upward trend. Instead of an average annual increase of 6.6%, the figure could be as high as 9%. This would be nearly double the growth of the economy and would put a much greater strain on taxpayers and beneficiaries, the trustees said.

"Medicare reminds us of the great dilemma of health care -- the things that are priceless are not price free," said Health and Human Services Secretary Michael Leavitt.

A steep hill for doctors

The report confirms the bleak future for physicians in Medicare if lawmakers do not step in. The projected 9.9% reduction in 2008 would be the start of a downhill slide that would see cumulative cuts of more than 40% over nine years. In that same period, the costs to physicians of providing services to seniors will increase by roughly 20%, the trustees said.

Although reversing the cuts would put Medicare on even more uneasy long-term fiscal ground, physician organizations say the price of inaction is too high. Such a massive and widening gap between reimbursements and practice costs would prevent many doctors from being able to serve new Medicare patients or invest in health information technology, the AMA's Dr. Wilson said.

"The AMA has grave concerns about the overall stability of the Medicare program, and our nation needs creative solutions for long-term reform," he said. "Arbitrary, drastic payment cuts to the physicians who are the foundation of Medicare are not the answer."

Doctors need a more predictable payment system, like those in other areas of Medicare that provide consistent updates based on the cost of providing care, stated AMA Executive Vice President and CEO Michael D. Maves, MD, MBA, in an April 27 letter to every member of Congress. He warned of the "looming meltdown" of the payment system but acknowledged the challenges of repairing it.

"The AMA understands that tackling this problem is not easy," Dr. Maves wrote. "In the past, Congress has dealt with the [payment formula] by 'kicking the can,' adopting interim measures that have raised the cost of each subsequent intervention."

With health care budgets tight, some lawmakers are looking toward Medicare managed care reimbursements as a way to offset part of the cost of new spending initiatives.

Medicare Advantage plans' pay in 2006 averaged 112% of what the traditional program spent per beneficiary, according to the Medicare Payment Advisory Commission. Equalizing payments between fee for service and Medicare managed care would save the federal government an estimated $65 billion over five years that could be used to help boost physician rates, cover more children or address the problem of uninsured Americans.

Financial neutrality would "level the playing field" and make Medicare stronger, Dr. Wilson said. But the managed care industry is readying a strong defense of the rates health plans receive. Medicare Advantage plans offer extra benefits upon which many seniors rely, and these would disappear if reductions were to take effect, insurers argue.

Responding to the alarm

Although it echoes warning themes from previous years, this year's report for the first time officially sounds a funding warning that Congress wrote into the Medicare statute.

The alarm was triggered because the report for the second year in a row projected that the portion of total Medicare spending that comes out of general tax revenues will exceed 45% within six years. It requires President Bush to propose legislation early next year to address the program's long-term financing problem, and it requires Congress to consider these proposals on a fast-track basis.

But lawmakers have rejected numerous proposed deep Medicare cuts from the White House aimed at making the program's long-term financing more stable -- even when Congress was under GOP control. Nothing in the warning statute requires lawmakers to vote on the president's proposal.

Some Democratic lawmakers dismissed the 45% warning trigger as an arbitrary figure designed to legitimize program cuts that ultimately will harm beneficiaries. AARP and the consumers group Families USA echoed this sentiment.

House Ways and Means health subcommittee Chair Pete Stark (D, Calif.), for example noted the trustees pushed back the date when Medicare's hospital insurance program is expected to become insolvent from 2018 to 2019. Unlike Part A, Medicare's Part B cannot go bankrupt because it is automatically funded by a combination of general tax dollars and beneficiary premiums.

"Despite Republican efforts to set the stage for the program's privatization, this year's trustees report shows that Medicare remains solvent and sustainable," Stark said.

Still, the Bush administration insisted that lawmakers must make tough funding choices now if Medicare is truly to be modernized.

"A critical element of this process is the movement we have under way for Medicare to change from being a passive payer of services to becoming an active purchaser of high-quality, efficient care," said CMS Acting Administrator Leslie V. Norwalk. "Until those steps are fully implemented, today's report starkly demonstrates the need to act to change Medicare's current growth trajectory."

CMS continues to push initiatives that officials hope will lead to a Medicare payment system based on quality of care, and will also better inform beneficiaries about the quality and price of the care they receive.

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ADDITIONAL INFORMATION

A decade of loss

[download pdf]

Physicians could face years of reimbursement cuts while their costs continue to rise.

Medicare Economic Index Physician update
2007 2.1% 0.0%
2008 2.0% -9.9%
2009 2.1% -5.0%
2010 1.7% -5.4%
2011 1.8% -5.3%
2012 1.9% -5.2%
2013 2.0% -5.1%
2014 2.1% -5.0%
2015 2.2% -5.0%
2016 2.4% -4.8%

Source: 2007 Medicare Trustees Report

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Part B possibilities

Annual spending growth under Medicare Part B is projected to average about 6.6% over the next 10 years under current law. Medicare trustees asked CMS to consider two other scenarios -- payment freezes and increases mirroring medical inflation, expected to be about 2% annually.

Anticipated spending (in billions):

Current law Payment freezes Inflation updates
Spending Change Spending Change Spending Change
2007 $179.6 6.3% $179.6 6.3% $179.6 6.3%
2008 $190.8 6.2% $196.8 9.6% $198.1 10.3%
2009 $202.9 6.3% $212.5 7.9% $215.1 8.6%
2010 $216.1 6.5% $230.8 8.6% $235.2 9.3%
2011 $229.3 6.1% $249.2 8.0% $255.8 8.8%
2012 $244.4 6.6% $270.0 8.3% $279.1 9.1%
2013 $261.6 7.1% $293.3 8.6% $305.4 9.4%
2014 $279.9 7.0% $317.9 8.4% $333.5 9.2%
2015 $299.5 7.0% $344.0 8.2% $363.7 9.1%
2016 $321.6 7.4% $373.4 8.5% $398.2 9.5%

Source: 2007 Medicare Trustees Report, CMS Office of the Actuary

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