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Medicare Compliance & Reimbursement

Physicians:

Docs May Win Pay Hike Thanks To Lobbying On Hill

Published on Thu Apr 22, 2004

Thomas and Johnson are working to get more dollars to doctors.

House Ways and Means Chair Bill Thomas (R-CA) is pushing the Centers for Medicare & Medicaid Services to administratively bump up Medicare reimbursement for physicians.
 
Besides boosting reimbursement on their own, the steps urged by Thomas and Health Subcommittee Chair Nancy Johnson (R-CT) in an April 1 letter could ease the way for a broader legislative fix for the pay formula that lawmakers are expected to propose sometime in the next few years. Raising physician compensation administratively in the meantime could raise the baseline cost against which the Congressional Budget Office would calculate the cost of future legislation, making a formula overhaul look cheaper and more doable in a tight budget climate.

Good news: It's nearly inevitable that Congress will attempt some formula fix. The new Medicare law guarantees physicians pay hikes of at least 1.5 percent in 2004 and 2005. However, if the current-law pay formula continues to operate, without similar future year-to-year legislative adjustments CMS actuaries predict that physicians would see annual pay cuts of about 5 percent from 2006 through 2012. Virtually no one believes Congress will allow that to happen.

Fee-for-service Medicare reimburses physicians under a "sustainable growth rate" formula. The scheme, adopted in 1997 in an attempt to check rapid increases in physician spending, sets an annual spending target for "physicians' services" that is tied to the growth in the overall gross domestic product. CMS projects whether actual spending will fall above or below the target, then adjusts reimbursement rates up or down so that spending is projected to hit the target.

Thomas and Johnson want CMS to modify the SGR formula in three ways: first, exclude the cost of physician-administered drugs from calculations of projected spending; second, more fully account for new benefits when setting the SGR target; third, re-examine assumptions about how physicians will change their behavior in response to reimbursement changes.

  • Excluding Prescription Drugs. Prescription drug costs have almost tripled as a percentage of total physician costs subject to the SGR, rising from 3.5 percent of total cost in 1996 to 10.0 percent in 2003.

    "This cost growth cannot be controlled by physicians, yet they are being penalized for prescription drug price increases," the Ways and Means GOP leaders say. They argue that CMS is free to exclude drug costs from the formula because the statutory definition of "physicians' services" does not specifically refer to drugs.

  • Fully Accounting For New Benefits. Currently, CMS only raises the SGR target when Congress adds Medicare benefits through legislation. CMS should also raise the target when it adds benefits itself by means of national coverage determinations, Thomas and Johnson say, citing statutory language stating that the target should be adjusted to reflect "changes in laws and regulations." (emphasis added)

    "As a result, physician payments are reduced for spending increases that are associated with new technologies or services that have been approved and publicized by federal officials," as when a CMS decision to cover Positron Emission Therapy added over 40 new reimbursement codes to Medicare, the lawmakers say.

    Thomas and Johnson also want to make sure that CMS's SGR revisions reflect the full direct and indirect impacts of new benefits. For instance, when the CMS actuaries estimate the costs of the new "welcome to Medicare" physical included in the Medicare Modernization Act, "they must consider not only the actual costs of providing the physical exam, but also the additional expenditures that may occur as beneficiaries are referred for supplementary diagnostic testing or treatment of conditions that are identified during the physical."

  • Reexamining Behavioral Responses. Thomas and Johnson say that CMS may be overestimating the extent to which physicians respond to reimbursement decreases by increasing service volume and intensity in order to maintain a target income. Currently, the agency assumes that physicians seek to offset in this manner about 30 percent of any rate decrease, an assumption that increases the size of the reimbursement cut needed to achieve a given target.

    The 30 percent assumption is based on a study that predates adoption of the SGR, the lawmakers say, noting that the study itself "states that the SGR system changed the long-term financial incentives for physicians to increase their volume and intensity." They add that "newer studies may provide additional insight. If the true behavioral offset is less than 30 percent, CMS' assumption contributes to volatility in updates over time."

    Moreover, Thomas and Johnson note, if CMS believes that physicians seek to maintain target incomes, then it also should account for other, external factors that would affect those incomes. For instance, recent tax cuts "will increase [physicians'] after-tax income and could lead to volume decreases," they say.

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