Payment Limbo: Medical societies take on SGR reform

In June, Congress gave physicians relief from the scheduled 21 percent Medicare pay cut, but only until the end of November. The payment patch, which briefly increases reimbursement by 2.2 percent, leaves doctors in limbo.

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September 2010

If Congress doesn’t intervene by Nov. 30, a 23 percent cut will go into effect in December and increase to nearly 30 percent in January. Now that health reform has passed, medical societies are doubling their efforts to get Congress to repeal the physician payment formula, based on the sustainable growth rate (SGR), and to introduce a system in which annual payment updates reflect changes in the cost of practicing medicine.

Many physicians are still upset that the law did not include permanent Medicare payment reform. “The most sweeping health care reform in a generation has just been passed this year. It’s interesting that the [Medicare payment] formula was not even addressed in this massive health reform legislation,” said Pete S. Batra, MD, associate professor and co-director of the Comprehensive Skull Base Program at the University of Texas Southwestern Medical Center at Dallas.

The June 24 temporary payment measure passed three weeks after the 21 percent pay cut went into effect. The patch was retroactive to June 1, but many physicians experienced cash-flow problems in the interim, according to J. James Rohack, MD, immediate past president of the American Medical Association (AMA). Some limited the number of Medicare patients they saw, and others had to take out loans to meet payroll.

A May 2010 AMA survey of 9,000 doctors found that 17 percent of physicians are restricting the number of Medicare patients in their practice. The top two reasons given: Payment rates are too low (85 percent), and the ongoing threat of payment cuts makes Medicare an unreliable payer (78 percent).

If cuts go through in December, more doctors will be forced to make tough decisions about Medicare, Dr. Rohack said. The survey found that 54 percent of physicians would restrict the number of Medicare patients they treat, 50 percent would stop taking new Medicare patients and 31 percent would stop taking any Medicare patients.

“A physician doesn’t need to have an MBA to say, ‘Do I want to participate in this insurance product that isn’t going to cover my costs and is going to require me to do a whole bunch of other things like the physician quality reporting initiative and investing in health information technology?’” Dr. Rohack said.

As more physicians limit the number of Medicare patients they’ll see or drop out of the program, access will suffer among seniors and military families, Dr. Rohack said. That’s because TRICARE, the military insurance program, ties its physician payment rates to Medicare. Patients with chronic conditions who lose access to a doctor might hold off on treatment and present when they are sicker and more expensive to treat, he said.

Pete S. Batra, MD“It’s interesting that the [Medicare payment] formula was not even addressed in this massive health reform legislation.”
—Pete S. Batra, MD

Practice Management

Some otolaryngologists say the uncertainty of what will happen later this year is impeding their ability to manage their practices.

“Just like any business, physicians have to forecast what their revenue and expenses are going to be each year, and if you can’t predict those, it’s hard to plan and make investments in new diagnostic or other equipment that might be needed,” said Ronald B. Kuppersmith, MD, president of the American Academy of Otolaryngology-Head and Neck Surgery.

The issue is also about quality, Dr. Batra said. If doctors can’t afford to replace aging equipment or invest in new medical technology or devices, it hurts their ability to provide high-quality care, he explained.

The implications go beyond Medicare, because most private insurers tie their physician payment rates to Medicare. “The reality is anybody who takes any type of insurance has the potential to be adversely affected,” Dr. Batra said.

The Medicare physician payment formula clashes with some of the new health delivery models, such as accountable care organizations, that are to be tested under the health reform law, Dr. Rohack said. The models encourage outpatient management of chronic conditions, which would drive up physician utilization. But the formula reduces Medicare payment if utilization rises above a target set by the formula, he explained; “What is wrong with this picture?”

Passage of a solution “is going to require bipartisan, bicameral leadership to recognize that innovation and alignment of incentives to keep people healthy and out of the hospital does require an increase in the outpatient volume of services,” Dr. Rohack said. Utilization of Medicare physician services will burgeon, regardless of new payment models, because the Baby Boom generation begins to age into Medicare eligibility next year, he noted.

A Timeline

Despite bipartisan support for Medicare payment reform, lawmakers have given up on acting before the November elections, several doctors said. In a time of economic crisis and an enormous federal deficit, lawmakers running for reelection don’t want to raise taxes, cut programs or increase the deficit, Dr. Kuppersmith said. After the election, the political climate may be more favorable, he said, depending on the economy and the makeup of the new Congress.

One thing is clear, however: The longer it takes for Congress to solve the problem, the more it will cost. In 2005, fixing the formula would have cost $50 billion. Today, the price tag is almost $300 billion, Dr. Rohack said.

The payment picture has been complicated further by the creation of the Independent Payment Advisory Board (IPAB). Much of organized medicine was opposed to the 15-member board, which was appointed by the president and confirmed by the Senate. In January, the American Academy of Otolaryngology-Head and Neck Surgery and 74 other organizations stated their opposition to the IPAB in a letter to Senators Harry Reid and Nancy Pelosi.

The reform law sets target growth rates for Medicare. If expenditures are expected to exceed that target, the IPAB is required to recommend proposals to reduce spending by specified amounts, according to a Kaiser Family Foundation fact sheet. The Department of Health and Human Services must implement the proposals unless Congress adopts an alternative with equivalent savings or the president vetoes the congressional package and the veto isn’t overridden. The first set of recommendations is due in 2014 for implementation in 2015.

The board is limited, however, in that it cannot submit proposals that would ration care, increase taxes, change Medicare benefits or eligibility, increase beneficiary premiums and cost-sharing requirements or reduce low-income Part D subsidies. Through 2019, the board is barred from recommending payment cuts to providers, primarily hospitals and hospices, that are already slated for reductions. Alarmingly, the IPAB can propose physician payment cuts.

Physicians are worried the board could propose something that, like the SGR, penalizes doctors when patient volume increases, Dr. Rohack said.

Because the board is now part of the law, doctors are trying to figure out how best to approach it, Dr. Kuppersmith said. One goal is to have a surgeon on the IPAB so that surgeons’ viewpoints are represented, he added.

Your Payments, Explained

Medicare pays for physician services based on the physician fee schedule. Under this system, payment rates are based on relative weights, called relative value units (RVUs). These account for the relative value of the amount of work required to provide a service, the expenses of maintaining a practice and liability insurance costs.

Each of the three RVUs is adjusted using geographic practice cost indexes to reflect price variations in different markets. The fee schedule payment amount is then determined by summing the adjusted weights and multiplying the total by a standard dollar amount, called the conversion factor.

The annual updates for the conversion factor are made according to the sustainable growth rate (SGR), a formula that determines a target physician spending amount. The SGR ties annual physician payment updates to the estimated change in fees for physician services, the estimated change in beneficiaries enrolled in Medicare’s fee-for-service program, the estimated growth in real gross domestic product (GDP) per capita and the estimated change in expenditures due to law and regulation.

If actual spending is less than the target, the update is positive. If actual spending is greater than the target, the update is negative and the Medicare physician payment is cut.

The physician community argues that the SGR is flawed because it is based on the GDP, rather than the change in the cost of practicing medicine, and because it does not allow for such factors as advances in medicine or the shift in care from hospitals to physician offices.

Sources: The American Medical Association and the Medicare Payment Advisory Commission