government

Medicare pay uncertainty called threat to program innovations

Medicare needs a payment system that supports new care delivery models, but the need to repeal the current formula undermines that focus, observers say.

By Charles Fiegl — Posted Dec. 7, 2012

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No one knows what Medicare rates for physician care will be in 2013, and such uncertainty is having a lasting negative effect on the national health program, according to health industry leaders.

Current law mandates deep cuts starting Jan. 1, and a potential jump off the so-called fiscal cliff is a steeper drop for physicians compared with others, officials representing the American Medical Association, American Hospital Assn., Avalere Health and Project HOPE said during a Nov. 29 forum moderated by the Arlington, Va.-based newspaper Politico. In 2013, across-the-board federal deficit cuts will reduce Medicare physician pay by 2%, but the sustainable growth rate formula used to determine pay for doctors services also is scheduled to slash rates by an additional 26.5%.

Many observers believe Congress will stop most of these cuts, but the constant battle to keep Medicare payments stable is preventing the program from making the changes necessary to improve care and potentially achieve savings, the forum participants said. The payment formula has mandated cuts in Medicare doctor pay for a decade that lawmakers have had to block.

The SGR is like a disease, said AMA Executive Vice President and CEO James L. Madara, MD. The acute form is present when impending cuts threaten payment rates and the chronic form is the uncertainty year after year. Practices and beneficiaries are placed at risk until a legislative patch is enacted, but the SGR returns again the next year — only stronger.

“It’s a zombie idea,” Dr. Madara said. “It keeps on coming back from the dead each year in worse and worse form.”

The SGR factors into physicians’ decisions related to restructuring their practices and participating in quality initiatives, he said. All physicians want to provide high-quality health services but do not have the incentive to get there due to such zombie financing, he added.

Physicians have their own fiscal cliff coming, with practices facing the huge threat of a nearly 30% reduction in fees come Jan. 1, said Gail Wilensky, PhD, an economist and senior analyst at the international health organization Project HOPE. Wilensky led the Medicare agency during the George H.W. Bush administration.

“Having this looming out year after year, these large reductions in fees, must really wear on physicians who are actively involved in Medicare, leaving them wondering what are they doing being involved in such an unstable program,” she said.

Congressional insiders say such a large cut won’t occur this year. Congress has prevented SGR cuts with temporary payment patches, some lasting just a couple of months, since 2002. The best outcome for physicians might be a smaller pay reduction, such as the 2% cut mandated by the deficit-reducing sequestration process, given the number of budgetary challenges Congress faces, Wilensky said.

The impact of the cuts affects each physician differently, Dr. Madara said. Those in large, integrated systems with capital reserves can survive payment interruptions. Solo and small practices have a more difficult time waiting for Washington to address Medicare rates.

“If these issues are not dealt with in the lame-duck session, there will be a negative impact on health care,” he said.

There is universal opposition to the SGR, but an estimate for a permanent pay solution is roughly $250 billion over a decade. Politics and accounting clash with reality when lawmakers address the SGR, said AHA President and CEO Rich Umbdenstock. Everyone needs to move beyond the broken formula, but he warned against cutting payments to others caring for Medicare beneficiaries to offset an SGR repeal. “That’s a ridiculous answer, so we have to guard against it.”

Payment problems plaguing Medicare will not be solved in the short term, said Dan Mendelson, president and CEO of Avalere Health, a consulting firm in Washington. The question is how Congress can get past the SGR and move to new models that physicians and others want to replace the current payment system.

“Physicians are getting left behind in part because all the attention is diverted by the SGR,” he said.

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