Medicare payments to physicians will remain virtually the same for some services and shrink by up to 11% for others by 2006 if the current method for determining fees is not changed, according to a Congressional Budget Office projection.
But the gap between Medicare fees for surgery and primary-care services will close over the next 10 years, the CBO said.
Although closing that gap is a high priority for general practitioners, it will be bitter consolation as fees for primary-care services will climb a scant 2% between 1996 and 2006 while physicians' practice costs are expected to increase between 1.7% and 2.2% every year, according to the CBO projection.
Meanwhile, fees for surgery will drop 8.9% and for nonsurgical procedures will drop 10.9% over that time, the CBO said.
The CBO periodically publishes estimates of the Medicare financial picture. But its late April Medicare report was the first time it has circulated publicly its projections of Medicare physician fees in the three different categories. Previously, the budget office's published report only included projected annual physician-fee updates that were an average of the updates in the three categories.
Although it doesn't paint as bleak a picture of future Medicare physician fees as does the Physician Payment Review Commission's estimate, provider groups said the CBO projection highlights the weaknesses in the system HCFA uses to calculate Medicare fee-for-service payments.
"How much longer can physicians be expected to eat these costs?" asked Charles Huntington, Washington office director of the American Academy of Family Physicians. "I don't know where Medicare beneficiaries are going to get any services."
The CBO projects Medicare spending for physician services will reach $35.1 billion in fiscal 1996, which ends Sept. 30.
The government calculates Medicare physician fees by multiplying a work-based numerical value assigned to each service or procedure provided to a Medicare beneficiary by a dollar value known as the "conversion factor."
The conversion factor is updated each year either by congressional action or a default formula when Congress doesn't act. That default formula bases the size of the update-and whether the conversion factor will be increased or decreased-on doctors' ability to keep aggregate Medicare physician spending growth below an annual cap.
If doctors keep spending growth below that cap, called the "volume performance standard," or VPS, they are rewarded with more generous fee increases. If they exceed the VPS, they are punished with smaller fee increases or actual fee cuts.
The VPS is derived from historical spending-growth trends, inflation and increases in non-managed-care Medicare enrollment. The law also requires that the calculations used to determine the annual VPS be reduced by four percentage points each year to discourage physicians from providing unnecessary services.
Slow spending growth and the four-percentage-point reduction have kept the VPS so low that many provider groups say it's impossible for physicians to stay within the spending-growth limits. As a result, they have sounded the alarm that physician fees are only going to shrink in the future, possibly endangering beneficiaries' access to care.
For instance, the PPRC, a congressional advisory panel, has projected that the default formula will result in fee cuts every year between now and 2005, even if Medicare physician payments grow as little as 3% a year.
The CBO's projection shows more variation in the annual updates, with surgery and primary-care-service fees increasing in four of the next 10 years and other nonsurgical services, which account for more than half of Medicare physician expenditures, receiving fee increases in three of the 10 years.
That volatility in fee increases and decreases is projected to occur because of the separate conversion factors and the VPS, according to some groups representing primary-care physicians.
Unpredictable spikes or sudden decreases in spending growth in one category cannot be balanced out by more steady growth in other categories when the three categories are separated, the primary-care groups said.
"That kind of volatility makes it impossible for physicians, with any sense of confidence, to plan for the future," said Robert Doherty, vice president for governmental affairs and public policy for the American Society of Internal Medicine.
Doherty added that the CBO's projections also bolster arguments in favor of scrapping parts of the current system and adopting proposals made last year by Congress and the White House during balanced-budget negotiations.
Both congressional Republicans and the Clinton administration proposed a single conversion factor, with the White House proposing a phase-in for surgeons.
Primary-care doctors contend that the intent of the physician fee schedule-which aimed to favor less-expensive primary care-has been undermined by the separate conversion factors and the gap that has developed between the surgical and primary-care conversion factors. Surgeons believe, however, that because they have kept their expenditure growth low, they deserve the larger conversion factors.
Both the congressional and White House proposals also called for eliminating the VPS in favor of a system that would key expenditure-growth-rate limits to growth in the real per-capita gross domestic product rather than historical growth-rate patterns. The congressional proposal would have set the target two percentage points more than the gross domestic product, while President Clinton called for setting the growth rate at one percentage point more than GDP.
Doherty said the CBO's projections under the current physician-payment system are an argument for unifying the conversion factor and replacing the VPS.
"If you do both things, you immediately eliminate the equity problem and you get rid of the volatility," Doherty said.*n