New Wave of Medicare Pay Cuts for Physicians Announced by CMS

WASHINGTON -- Medicare's Part B physician fee schedule will be cut 9.9%, starting next January, the government has announced, prompting anguished warnings from the AMA of decreased access to medical services for seniors.

WASHINGTON, July 5 -- Medicare's Part B physician fee schedule will be cut 9.9% next January, the government has announced, prompting anguished warnings from organized medicine of decreased access to medical services for seniors.

Despite a recommendation from the Medicare Payment Advisory Commission last March that would give doctors a 1.7% fee hike in 2008, the Centers for Medicare & Medicaid Services was required by law to slash fees because of the sustainable growth rate formula.

The fee cut was nearly twice as great as the one that CMS wanted for 2007, but Congress essentially froze fees at the previous year's levels -- a practice the legislators had followed since 2002.

The formula compares the actual rate of growth in health spending to a target rate, based on such factors as the growth in the number of Medicare beneficiaries, physician practice expenses, and the gross domestic product (GDP). If spending exceeds sustainable growth rate targets, physician payments are reduced. The 2007 Medicare Trustees report predicts total cuts in physician pay of about 40% by 2016.

In what's become an annual rite since 2002, the AMA and scores of other medical organizations have been lobbying Congress and CMS to stop planned cuts, and to scrap the "broken-beyond-repair" formula.

Cecil B. Wilson, M.D., a Winter Park, Fla., internist, who is chairman of the AMA's Board of Trustees, said that Medicare pays doctors the same as in 2001, but average practice costs have risen 18% since then.

"More than 60% of doctors say they will be forced to limit the number of Medicare patients they can treat," he asserted. "Seniors' access to health care is in jeopardy."

In a May 2007AMA survey of 8,955 physicians, 77% said they'll limit the number of new Medicare patients -- and 68% will limit the number of their established Medicare patients -- if fees are cut by the projected 40% over the next nine years.

The steep pay cut will also prevent physicians from investing in new health information technology needed to support quality measurement being demanded by Medicare, the survey found. Two-thirds of physicians said they would defer purchasing such equipment if fees are cut 10% in 2008.

Other findings in the physician survey were:

  • 67% said they would begin referring complex cases.
  • 58% said they would discontinue nursing home visits.
  • 57% said they would discontinue rural outreach.
  • 54% said they would reduce staffers.
  • 14% said they would stop providing patient care altogether.

The latest fee cut announcement comes as no surprise. For the past five years, there's been an annual cycle: CMS proposes pay cuts; medical groups predict dire consequences; Congress enacts a last-minute rescue to overturn the cuts and occasionally provide for minuscule pay increases.

Yet this year, the proposed fee cut is deeper than ever and more physicians plan to limit their services to Medicare patients than in previous surveys, the AMA noted.

Physician groups argue that not only is the sustainable growth rate formula deeply flawed, if not Byzantine, it doesn't account accurately for rising practice costs. For example, use of physician services grows more rapidly than the gross domestic product. So using GDP as a standard means the target is always set too low.

Also, they argue, the formula isn't appropriately adjusted to reflect new Medicare policies that expand coverage, such as those allowing for payment of macular degeneration treatment and implantable cardiac defibrillators. Omitting the costs of such treatments from the formula targets increases the likelihood of pay cuts.

The sustainable growth rate formula also punishes physicians for any spending over the target even as part of an effort to "encourage enhanced use of preventive care in order to reduce the need for future hospitalizations," the AMA and the 85 other groups noted in a February letter asking Congress to fix or scrap the formula.

At the same time it's proposing to cut fees, Medicare vows to push its pay-for-performance programs and "transform Medicare into an active purchaser of higher quality services, rather than just paying for procedures," said acting CMS Administrator Leslie V. Norwalk.

That troubles the AMA's House of Delegates. It announced on June 27 that it will actively oppose any pay-for-performance initiatives unless the plans benefit patients. Delegates worry that CMS will use the programs to cut costs rather than improve quality. (See AMA: Delegates Want Principles First with Pay for Performance)

The final rule on Medicare fee cuts will be published in the fall. If the past is any guide, there'll be strong pressure on Congress to rescind them just before the Christmas recess.