Medicare payment outlook is dismal

Scarce dollars mean that a boost for rural doctors would hurt other physicians, and relief from next year's expected pay cut will be tough to get.
By Markian Hawryluk, AMNews staff. June 2/9, 2003.


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Washington -- Congressional debate over Medicare payment policy in the next months will force physicians to face the cold, harsh reality of life in tight budgetary times.

With limited resources and a long list of funding needs, lawmakers will have to choose between competing interests. Their options pit physicians against physicians, and physicians against their patients, in the fight for health care dollars.

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The opening salvo of the debate came as an amendment by Sen. Charles Grassley (R, Iowa) to the tax bill passed by the Senate in mid-May. The measure would provide more funds for rural health care, including limits on the geographic disparities in Medicare physician payments. But the boon for rural doctors could come at the expense of other physicians.

Medicare adjusts physician fees for local variations in labor, practice and liability insurance costs. That means many rural physicians have been paid less for the same services than their counterparts in higher cost, urban areas.

The Grassley amendment would eliminate any reductions that occur as a result of the geographic adjusters. That would bring all physicians at least to the national average without lowering payments to physicians in higher-cost areas.

"This legislation goes a long way to fixing the shortcomings in Medicare that shortchange Iowa and other rural states," Grassley said.

To pay for the adjustments, Grassley proposed cutting Medicare payments for physician-administered outpatient drugs, adding a beneficiary co-payment for clinical lab services and freezing payments for durable medical equipment.

Medicare pays for only a handful of outpatient drugs, mainly chemotherapy treatments, that are typically administered by physicians. Doctors are reimbursed for the drugs at 95% of the manufacturer-reported average wholesale price. In recent years, lawmakers have discovered that this price is often much higher than the prices physicians actually pay for the drugs.

But oncologists and other specialists depend on overpayments to make up for shortfalls in Medicare payments for administering those drugs. Lawmakers crafting wholesale price measures have pledged not to cut drug prices without increasing reimbursement for practice expenses for doctors relying on such cross-subsidies.

The Grassley amendment, however, would not raise payments to those physicians. That means oncologists, hematologists and other affected doctors would have to take a pay cut to fund increases for rural physicians.

"Sen. Grassley cut AWP and spent the money on rural health," said Tom Scully, administrator of the Centers for Medicare & Medicaid Services. Scully said CMS would adjust drug pricing and raise practice expense payments administratively if Congress doesn't act on wholesale pricing.

The House version of the tax bill does not include the Grassley provisions, and congressional staff have indicated that House leaders would prefer to deal with those issues in a Medicare reform bill this summer. A committee of House and Senate appointees will now try to hammer out a single version of the tax bill.

If Grassley's amendment is signed into law, CMS could still raise practice expense payments for the oncologists, but only by reducing payments to other doctors, Scully said.

Barbara McAneny, MD, an oncologist from Albuquerque, N.M., said the Grassley amendment has caused her to take a hard look at which Medicare patients come through her door.

"I have now asked my CPA to run me a spreadsheet to look at what level Medicare patient I can afford to take care of in my group," she said. "Having this decrease without an increase in practice expense [payments] on top of the projected 4.2% decrease in Medicare for next year is really going to put us on the brink in terms of being able to treat Medicare patients."

Trouble all around
And prospects for relief from next year's anticipated 4.2% average Medicare pay cut for all physicians appear gloomy.

Rep. Bill Thomas (R, Calif.), chair of the House Ways and Means Committee, said lawmakers expected the Bush administration's move earlier this year to increase physician payments would have resulted in positive updates for the next few years. Now, other priorities, such as an outpatient prescription drug benefit, might take precedence over further relief for physicians. Any increase in physician payment would mean fewer funds for a drug benefit for seniors.

"The administration just put in $60 billion into the pot," Thomas said. "At some point, somebody at least has to take a long breath."

Thomas said he would consider some changes to the physician payment formula to smooth out the sharp up-and-down trend of updates in recent years but would probably add no new money.

Scully has also been lukewarm to the idea of increasing physician payments because the volume of physician services grew substantially faster in 2002 than expected. When physician spending exceeds the target, payment is cut in future years.

Part of that growth in physician services was a 35% jump in spending on physician-administered drugs.

Dr. McAneny, a member of CMS' Practicing Physicians Advisory Council, is irked that this drug spending is part of the pay formula.

"I have absolutely no control over the cost of those drugs," Dr. McAneny said. "I have to purchase these medications in order to administer them, and it would be unethical for me to deny them to Medicare patients."

Scully has indicated little support for removing the drug expenses from the physician update calculation because the administration believes that physicians are in the best position to control spending for those drugs. But Dr. McAneny and PPAC members told Scully that this puts them in the difficult position of penalizing all physicians when they choose what's best for their patients.

The American Medical Association has urged CMS to drop drug spending from its definition of physician services. The AMA also has maintained that its top payment reform issue remains the update. While the group has supported greater geographic equity in Medicare payments, the AMA says eliminating the cut in overall Medicare payments will do more for rural states and benefit all physicians.

The Medicare payment situation has left rural physicians, including Michael Kitchell, MD, a neurologist from Ames, Iowa, feeling twice bitten. Rural physicians have typically had lower utilization rates than doctors in other parts of the country, yet they now face cuts because of the increase in the volume of services provided nationwide.

"It's a sad irony that, because of utilization patterns in more highly reimbursed states, beneficiaries in the lower-reimbursed states will have their access to care impeded," Dr. Kitchell said.

"Practice pressures, increased costs and these across-the-board payment cuts affect all physicians," he said. "But those of us in Iowa and other rural areas feel as though we have a double Medicare penalty -- from the [update] and secondly from geographical adjustments."

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ADDITIONAL INFORMATION:
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Iowa is among rural states that stand to gain from the elimination of regional adjustments in Medicare pay, but physicians there would lose much more from the anticipated 4.2% across-the-board cuts.

Increase over 10 years from elimination of geographic adjusters:

Physician work >$2.28 million
Practice expense $4.81 million
Liability premiums $1.06 million
Total $8.15 million

Impact of a 4.2% pay cut: $28 million decrease in 2004

Sources: Office of Sen. Charles Grassley, AMA

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