Will Medicare Slash Reimbursement In 2006?

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By Brian McCurdy, Associate Editor

   Congressional legislation has been able to hold off cuts in Medicare reimbursement for the last several years. However, the relief may have been only temporary. If Congress does not take further action beyond the temporary 2004-05 legislative fix, physicians may see a reduction in Medicare reimbursement in 2006.

   Without a legislative remedy, podiatrists will see a 5.2 percent reduction in Medicare payments next year, notes Julie K. Letwat, JD, MPH, the Director of Health Policy and Practice Advocacy for the American College of Foot and Ankle Surgeons (ACFAS). Between 2006 and 2013, Medicare reimbursement rates will be slashed by 31 percent, according to Letwat. She adds that if these cuts are not prevented, Medicare payment rates in 2013 will be less than half of 1991 rates, adjusting for inflation.

   Medicare physician payments were cut by 5.4 percent in 2002 using the Sustainable Growth Rate (SGR) formula, according to the American Medical Association (AMA). According to the ACFAS, the SGR system is based on estimates by the Centers for Medicare and Medicaid Services (CMS) for the following four factors: inflation; Medicare fee-for-service enrollment; per capita growth in the Gross Domestic Product as adjusted for inflation; and changes in spending due to law and regulation.

   The reimbursement formula also takes into account Relative Value Units (RVUs), three sets of which Medicare assigns to each CPT code, according to the ACFAS. The RVUs quantify the value of the physician work, practice expense and malpractice expense associated with providing that service. The ACFAS says Medicare combines the RVU with adjustments for geographic differences in costs and a conversion factor to formulate a fee schedule.

Is The Medicare Payment System Flawed?

   The ACFAS and the AMA advocate changes to the fee system, pointing to flaws in Medicare’s SGR formula.

    “Medicare payments are already lagging behind increases in practice costs,” points out Letwat. “The physician community believes payment updates should be based on increases in practice costs instead of the SGR.”

   Anthony Poggio, DPM, echoes that concern. He says there is a significant gap between decreasing reimbursements for services and the increasing salaries, overhead and insurance costs of running a practice. He feels having an outside auditing firm look at the actuarial costs of doctors’ offices would correct the problem.

   Dr. Poggio, a consultant for several insurance companies, also describes a “backdoor approach” by Medicare of increasing the conversion factor it uses to help formulate fee schedules, but offsetting that with a decrease in the RVU value of the service. What seems to be an increase actually results in doctors only breaking even or taking a loss, according to Dr. Poggio.

    “The best reality check would be to have members of Congress and their staff covered by Medicare insurance and not by other private insurances, which offer generous coverage packages and fairly reasonable physician reimbursement rates,” argues Dr. Poggio. “If congressional members had to hunt to find doctors accepting Medicare covered patients, they may get a sense of what the patients and doctors face daily.”

   The AMA notes that only physicians are subject to cuts determined by the SGR formula. Hospitals, Medicare Advantage plans and home health plans will continue to receive reimbursement increases based on medical inflation, according to the AMA. In fact, the AMA notes while reimbursements to physicians would decrease by 31 percent between 2006 and 2013, in-patient hospital payments would rise by 32 percent during the same period. The AMA notes most medical practices are small businesses which cannot “absorb sustained losses or steep payment cuts” that are part of the SGR system and such a situation will affect patients.

   Citing physician surveys, the AMA says “these cuts will make it difficult for new Medicare patients to promptly obtain care, cause significant reductions in services for rural areas and prevent investments in new medical equipment and information technology that promise to improve patient care.”

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