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Medicare physician payment slated for 4.2% reduction in 2004
The AAOS is appealing to Congress and the CMS to rework the formula used to calculate physician reimbursement.
The Centers for Medicare and Medicaid Services is holding fast to its earlier estimate of a 4.2% cut in 2004 Medicare payments to physicians and recommended a few other changes in payment policy, following a re-analysis of its 2004 Medicare proposal.
The federal agency also said it would try to more fairly account for the rising cost of liability premiums, but the rates would still increase an average 6.6% for physicians nationwide over the next year.
Medicare spending for physician services is expected to increase to approximately $48.7 billion in 2004, an increase from $47.9 billion in 2003. The increase, however, is due to the growing number of services provided to beneficiaries, according to Centers for Medicare and Medicaid Services (CMS) estimates.
Payment per service, for the most part, will decline under the congressionally mandated payment formula, said David A. Lovett, director of the American Academy of Orthopaedic Surgeons (AAOS)’ Washington office.
Orthopedic surgeons may be targeted for larger payment decreases. Because of further proposed changes to the resource-based practice expense relative value units, orthopedic surgeons could see a total average reduction of 6%.
CMS’ calculations project Medicare reimbursements for total hip replacement and total knee replacement will decrease by 5% and 4%, respectively. Reimbursements for hip fractures are likely to be cut by as much as 10%.
Seeking a new formula
According to Lovett, the major reason for the severe reduction in Medicare physician payments is that federal law requires CMS to use a “flawed” formula to calculate each year’s update to the Medicare Fee Schedule.
With regard to the liability component, CMS continues to use old data. Although the CMS said it will use 2000 year data to calculate the professional liability expense portion of the Medicare Economic Index (MEI) — an improvement over the 1996 data used for 2003 — it is still not as current and relevant as it could be, Lovett said. The 2004 professional liability expense is 3.865% of total costs, a 0.713% increase over the 1996-based index.
The CMS reported that this increase reflects the increase in premiums and in the amount of insurance coverage purchased by physicians in 2000. However, the new number does not reflect any changes caused by skyrocketing increases in liability premiums in 2001 and 2002.
Taking it to Capitol Hill
Leaders from the AAOS and the Alliance of Specialty Medicine — which represents 14 medical specialties and approximately 200,000 physicians across the country — met with the House and Senate leaders in June and will meet again on Oct. 1 to discuss the flawed payment formula.
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According to an AAOS legislative update in July, the Senate remained steadfast in not addressing problems with the physician payment formula as a part of its prescription drug bill, but Sen. Arlen Specter, R-Pa., offered a resolution urging Congress to fix the physician Sustainable Growth Rate (SGR) formula problem. Spector offered this resolution specifically at the request of the AAOS and the Alliance for Specialty Medicine.
Lovett said Specter’s resolution “recognizes the need for a permanent solution to the Medicare physician payment formula problem and calls on the CMS and Congress to make the needed adjustments and changes to the SGR formula to prevent payment reductions.”
A money problem
Lovett believes the problem won’t go away quietly because “Congress hasn’t addressed what should be spent on health care. Until Congress gets more serious and puts more money into the pool, we’ll be facing more and more of these crisis situations in the future,” he said in a phone interview with Orthopedics Today.
At one time, the federal government was in a close partnership with health care professionals to provide high-quality health care. “However, that partnership is over, and the government has never felt it was important enough to put more money into the [Medicare] pool. So we’re constantly fighting this relatively fixed ‘pie model’ of Medicare funding,” he said.
Ultimately, “The government is not committed to spend the amount of money it needs to as the baby boomers become senior citizens, and that’s the bottom line.”
While the Senate bill does not address the payment formula, the House bill contains interim relief to physicians by guaranteeing no less than a 1.5% update for 2004 and 2005. Also included in the House bill is a change to the current formula that allows for a 10-year rolling average of the GDP.
“However, we indicated to these legislators that we are deeply concerned that beginning in 2006, the formula will revert back to the currently flawed SGR formula, followed by years of deep reductions to pay for this short-term relief,” Lovett noted.
Inflation and geographic differences
On the bright side, the CMS says it is proposing to change the way it calculates medical inflation for physicians, as well as eventually modify the geographic adjustments used to account for regional differences in costs.
The CMS plans to increase the weight given to rising liability premiums in calculating an overall measure of medical inflation (ie, the MEI), which is part of the payment formula. That would allow Medicare spending to better account for the rise or fall of liability premium costs.
This time last year, the CMS set liability cost increases at 11.3% for 2003. For 2004 rates, the agency predicts an average national increase of 6.6%.
The federal agency also plans to revise the geographic practice cost indices intended to account for regional differences in practice expense, physician work and liability premium costs. Revisions of the work and practice adjusters will have to wait until the 2005 ruling, however, since the 2000 census data on which it will be based is not yet available.
Instead, the CMS intends to adjust the liability geographic index in 2004 using actual premium data from 1999 through 2002 and estimated premium data for 2003. That could increase Medicare payments to regions and states with higher than average liability premiums, but would lower payments in low-cost areas an equal amount to ensure that overall spending for physician services does not increase.
Should we start panicking?
Lovett said patients haven’t complained about the situation to their Congressmen because they don’t see it as a crisis yet. Likewise, “A lot of specialties still don’t see it as a crisis yet. That’s why not much has been done yet. But we’ve almost reached a crisis level,” he said.
Medicare cuts in 2003 have already changed practice patterns. “When I started working at the academy 11 years ago, about 80% of an orthopedic surgeon’s practice was surgical-based at a hospital site. Today, nearly 60% of a surgeon’s [workload] is done at his office,” Lovett said.
“For those orthopedic specialties that were traditionally based at a hospital site, especially total joint replacements, those practices experienced the biggest cuts, and those with more of an office-based practice had less of a hit. So what the government is doing by this [Medicare] reimbursement policy is fundamentally changing the practice of medicine, and it’s affecting patient care. That’s a problem.”
On the AAOS agenda
Lovett said the reimbursement and liability issues are the highest priorities for the academy right now. “We are very engaged in this, and our message to Congress has always been how reimbursement affects the access and quality of health care. We’ve always advocated for fair compensation, and now we’re trying to address a government error.”
He also believes the CMS has the power to make the necessary changes, if they want to.
“CMS used to say they couldn’t do certain things unless they had congressional authority. Last year, we gave them that authority; we pushed for provisions in legislation to basically say that if they did certain changes, they wouldn’t be subject to judicial review,” he told Orthopedics Today. “So we believe that CMS has the authority to do certain things now, but I don’t think they’re going to. For example, I believe they could take the drugs from the SGR calculation used in the formula.”
Lovett recommended that AAOS members contact their representatives in Congress about the payment issue, but most importantly, “they should talk about how the declining reimbursement rates are directly affecting access to care. That’s the real issue here.”
Tye Ouzounian, MD, chair of the AAOS Health Care Financing Committee, agrees that AAOS members can make a difference.
“I would encourage individual members to work through (Dan Sung) of the AAOS Health Care Financing Committee. If members identify individual codes that are not appropriately valued, we can correct this with CMS,” he said.
Most importantly, AAOS members need to minimize their frustration about reimbursement and focus on identifying specific codes that are not appropriately valued. “They should submit their recommendations to the AAOS Health Care Financing Committee for consideration, and their suggestions need to be based on fact, not simply the fact that they want to get paid more,” he said.