Medicare Compliance & Reimbursement

Recommendation would alter the way physician payment updates are calculated.

In 2005 Medicare should update physicians' payment based on the annual change in input prices adjusted by a productivity-growth target. That's according to the Medicare Payment Advisory Commission's March report, which finds that Medicare's payments to physicians are currently adequate to ensure beneficiary access.
 
For the past few years, MedPAC has advocated changing the so-called sustainable growth-rate formula Medicare has been using to make physician payments.                  

In an attempt to keep inflating physician costs from spiraling out of bounds, the SGR formula essentially stipulates that the United States can afford to have only a specified proportion of its gross domestic product consist of volume-driven Medicare physician expenditures. When the expenditures for a given year exceed that target portion of GDP, the SGR formula cuts payments for the next year.

Because of the linkage to GDP and some government counting errors, use of the formula would have led to significant payment cuts in the last several years. Congress has stepped in and set payment updates outside of the formula, but lawmakers and MedPAC agree that legislators must soon develop a new pay scheme for doctors that will be less volatile and not require year-to-year congressional intervention.

At least temporarily, MedPAC proposes this formula for 2005: Update physician payments by the Medicare Economic Index -- a weighted average of price changes for the inputs that are used to furnish physician services -- minus an adjustment for target productivity growth. Currently, the projected MEI for 2005 is 3.5 percent and MedPAC's standard for the productivity growth achievable next year is 0.9 percent, based on a 10-year average of the federal Bureau of Labor Statistics' estimate of economy-wide multifactor productivity growth. The formula would yield a 2.6 percent reimbursement boost for 2005.

Efficient providers should be able to decrease the inputs required to produce a unit of service by "at least a modest amount each year while maintaining service quality," according to the March report.