It's official: 10.1% Medicare pay cut for physicians unless Congress acts

Doctors are pressing lawmakers to pass an update that reflects increases in the cost of caring for Medicare patients.

By — Posted Nov. 19, 2007

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In what is becoming an annual rite, physicians are again fighting to prevent a reduction in Medicare payments. This time, however, the cut is in the double digits and is the largest ever.

The Centers for Medicare & Medicaid Services final 2008 Medicare physician fee schedule rule institutes an average 10.1% pay cut effective Jan. 1, 2008, although the percentage will vary by specialty, practice and geography.

The rule also lists the 74 quality measures to be used in the Physicians Quality Reporting Initiative in 2008. It specifies that a $1.35 billion fund adopted last year will go to the PQRI and not toward easing physician pay cuts. The regulation also delays finalizing most of the latest revised physician self-referral, or "Stark," rules.

Medical organizations called the 10.1% reduction unacceptable.

"Congress must step in to replace the cut with payment increases that keep up with medical practice costs," said American Medical Association Board of Trustees Chair Edward L. Langston, MD. "Next year's 10.1% physician payment cut is bad news for America's seniors as 60% of physicians say the cut will force them to limit the number of new Medicare patients they can treat."

Dr. Langston suggested using $54 billion in what doctors view as excess payments to private Medicare health plans to offset the cut. These Medicare Advantage plans received 112% of the amount that traditional Medicare paid for each senior's care in 2006.

Another one-year payment cut reversal -- which would be the sixth in a row -- is not good enough, said American College of Physicians President David C. Dale, MD. "We have been fighting this annual battle over and over again. The Senate needs to join the House in passing legislation that will pay for positive updates in the next two years."

The 2008 Medicare pay cut for doctors is twice as large as the 5% cut physicians avoided this year because Congress declined to adjust the payment formula to take into account the 2007 payment freeze. That decision made scrapping this year's payment reduction billions cheaper. But it also meant that the 2008 cut would have to be two times as high to get reimbursement back in line with the level called for in the Medicare formula.

Not every specialty would be affected equally if next year's reduction stands. Although the 10.1% average fee cut applies across the board, other factors adjust the net effect. For example, anesthesiologists would get a 4% boost because of changes in their practice costs formula, the pay rule states.

But other physicians face net cuts -- some as high as 13%, such as nephrologists. Most reductions fall between 9% and 12%.

Fee calculations also were affected by the three-year update of geographic adjustment factors in this year's rule. CMS uses the geographic adjustment factor -- an index of work and liability costs -- to benchmark physician operating costs around the country, which influences its overall physician fee calculations. In 2008, rural Maine will receive the highest geographic increase at 5.9%, while Detroit's index will decrease by 4.3% -- the biggest drop.

Congress looks for a solution

Lawmakers continue to work on legislation to prevent next year's cut.

In the House, an Energy and Commerce Committee staff member said leaders are sticking with the Medicare physician pay provisions adopted as part of its State Children's Health Insurance Program reauthorization bill in early August. The measure would have increased reimbursement 0.5% in 2008 and 2009 each.

Cuts to Medicare Advantage health plans' payment would have largely funded the boost. Specifically, these cuts would have lowered Medicare's regional benchmark payments to insurance companies, ended a stabilization fund used to share risks with insurance companies and eliminated indirect medical education payments to teaching hospitals.

These changes would reduce enrollment by more than half of the projected 12.5 million enrollees in 2012, according to an Oct. 10 Congressional Budget Office analysis. Today 8.2 million people are in these health plans.

But the provisions were removed in the House-Senate compromise SCHIP bill in an attempt to maintain a veto-proof Senate majority. Many Senate Republicans oppose cutting private health plan payments.

Still, Sen. Max Baucus (D, Mont.), chair of the Senate Finance Committee, would prefer to adopt a two-year payment fix by shifting some Medicare Advantage payments to fund physician reimbursement, said panel spokeswoman Carol Guthrie. But Republican members' support of such a measure was not clear at press time.

Self-referral rules delayed

Under the final payment rule, physicians will have more time to prepare for and comment on most of the third revision of physician self-referral rules. CMS delayed finalizing them and planned a later comment period.

One exception is a rule that prohibits markups by the physician or supplier on the technical or professional components of diagnostic tests when tests are performed outside of the physician's or supplier's office.

The AMA is concerned about the increasing complexity of the Stark rules, according to AMA Executive Vice President and CEO Michael D. Maves, MD, MBA.

In the final rule, CMS also identified the 74 standards that will be used in the Physicians Quality Reporting Initiative in 2008. The agency plans to publish the details of the entire measure set at a later date. Also, CMS will continue to accept stakeholder input on the standards, which were narrowed from an initial list of 148. The agency estimates that PQRI physician bonus payments for 2008 will remain around 1.5% of allowed charges.

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Payment rule highlights

The Centers for Medicare & Medicaid Services released the 2008 Medicare physician fee schedule final rule earlier this month. The rule, effective Jan. 1, 2008:

  • Institutes a 10.1% physician payment cut, 0.2% more than the 9.9% cut CMS estimated in July. But actual payment rates to doctors will vary by region, practice and specialty for several reasons. For example, the final rule implements geographic rate revisions that occur every three years.
  • Plans to use a $1.35 billion physician quality and assistance fund approved by Congress last year to fund the Physician Quality Reporting Initiative in 2008. The rule also finalizes the list of 74 quality measures the PQRI will use.
  • Delays finalizing most of the self-referral -- or "Stark rule" -- updates included in the proposed payment regulation. One exception is a rule for diagnostic tests that prohibits markups on the technical or professional components of tests by the physician or supplier when performed outside of the physician's or supplier's office.

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Falling behind

For the past five years, lawmakers have stepped in to prevent Medicare physician payment cuts called for by the reimbursement formula. But updates have not kept up with growth in the price of doing business, as measured by the Medicare Economic Index.

Medicare formulaActual updateMEI

Note: For 2006, Congress froze the conversion factor, but relative value unit refinements resulted in a 0.2% update.

Source: 2007 Medicare trustees report and CMS Medicare payment rule

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External links

Centers for Medicare & Medicaid Services physician center (link)

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