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No Quick Fix for Doctors’ Incessant Headache – Decrease in Medicare Physician Reimbursement Looming

It’s about that time of year again when Congress starts talking about allocating billions of dollars toward fixing the Medicare physician payment system to prevent doctors from taking a colossal pay cut. Despite the drubbing that politicians take each year on this issue from doctors, the more cynical among us think lawmakers like the attention and the support it gives them in re-elections when they pull the doc-fix out of their hat each year. And with Congress fixated on the budget deficits, debt crisis, and a new Super Committee to reduce spending and curb unsustainable growth, is a permanent fix for Medicare doctors really in the making this year?

Last month, CMS released a proposed rule that will reduce physician reimbursement in the Medicare program by nearly 30 percent beginning in 2012. This practice has its origins in 1997, when the so-called Sustainable Growth Rate (SGR) formula was passed as part of the Balanced Budget Act (BBA). The intent of this legislation was noble: control the overall cost and growth of physician services in the fee-for-service (FFS) system where there is little or no incentive to control costs because the basis for payment is predicated on the number of times a physician sees a patient.

The SGR was intended to tie overall physician payments (utilization and unit cost) to the formula to ensure that total spending on this Medicare service area did not out-pace inflation. Essentially, Congress enacted a provision that would increase the SGR annually between approximately five and ten percent to ensure that spending could increase reasonably, but did not grow too quickly due to over-utilization. If utilization grows too much, the law calls for a direct correlation in the drop in the unit cost.

Given the deficiencies in the unmanaged Medicare world, spending on physician services has grown much faster than increases in the GDP. The result has been that the SGR formula actually required cuts to reimbursements almost every year since its introduction because utilization increased too much. Congress, of course, interceded and found temporary or one-time funding to fill in the void. But because no permanent money was found, huge “cliffs” each year began to appear as the permanent reduction grew and grew and grew. That meant each year lawmakers had to find an ever-growing temporary pot of money for each fix. As much as some may like it from a political standpoint, under the current system Congress finds itself on a constant treadmill, burning precious time and resources on an annual political crisis of sorts needing to find billions to prevent this dramatic reduction in reimbursement.

What would a permanent fix cost now? The Congressional Budget Office (CBO) estimates to permanently restore the impending 30 percent reduction, $273.7 billion over a decade would have to be found — all this at a time when Congress is focused on cutting, not increasing, spending. Any number of advocates for making the doctors whole propose a litany of offsets (including additional rebates from drug manufacturers), but the fiscally minded are arguing that all offsets should now go to reduce the deficit and debt.

There is no question that the SGR formula is far too rigid right now. No one is arguing that doctors could sustain a 30 percent reduction in the FFS system and it not impact access or even quality. Seniors rely on the FFS system to provide their care. There are a great number of providers in the Medicare system who likely would exit the program if this 30 percent reduction were to be enforced. Notably, this would not just be a problem in original Medicare, but would also disrupt care for those in Medicare Advantage as these payment reductions would be passed on in lower rates in the managed care program.

Fixing the SGR by getting rid of it and funding the gap is not the answer. Realigning providers’ incentives throughout the FFS system is the right way to go, even if it costs a little now. Only then will we be on a rational course toward reducing waste, fraud and abuse in the system and lowering out year trends in the Medicare FFS system. There are a number of ideas circulating which Congress needs to impart serious consideration and attention. Any solution must control utilization, improve quality and forge partnerships and relationships on care management from among all providers in the system of care.

Marc Ryan

Marc S. Ryan serves as MedHOK’s Chief Strategy and Compliance Officer. During his career, Marc has served a number of health plans in executive-level regulatory, compliance, business development, and operations roles. He has launched and operated plans with Medicare, Medicaid, Commercial and Exchange lines of business. Marc was the Secretary of Policy and Management and State Budget Director of Connecticut, where he oversaw all aspects of state budgeting and management. In this role, Marc created the state’s Medicaid and SCHIP managed care programs and oversaw its state employee and retiree health plans. He also created the state’s long-term care continuum program. Marc was nominated by then HHS Secretary Tommy Thompson to serve on a panel of state program experts to advise CMS on aspects of Medicare Part D implementation. He also was nominated by Florida’s Medicaid Secretary to serve on the state’s Medicaid Reform advisory panel.

Marc graduated cum laude from the Edmund A. Walsh School of Foreign Service at Georgetown University with a Bachelor of Science in Foreign Service. He received a Master of Public Administration, specializing in local government management and managed healthcare, from the University of New Haven. He was inducted into Sigma Beta Delta, a national honor society for business, management, and administration.

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