Thirty-five years ago, doctors fought tooth and nail against Medicare's passage but couldn't muster the support to defeat a central plank in President Johnson's Great Society program. As the government health insurance program for the elderly celebrates its anniversary in July, few physicians feel the same way, given the numerous summer homes and college tuitions for which it has paid.
"Medicare has been there for my entire career," says George Isham, M.D., medical director of HealthPartners in Minneapolis. "I can't imagine what it would be like for the elderly without it."
While doctors welcomed the possibility of millions of new patients at their doorstep, they feared that Medicare would intrude on their turf and dictate prices.
Medicare has not only benefited seniors but also has been a "huge generator of incomes for physicians," says Robert Berenson, M.D., director of the Center for Health Plans and Providers at HCFA. Berenson practiced internal medicine before taking his current position.
But the glory days of doctors getting ever greater increases in rates and practicing unfettered are over. Unless a formula designated by Congress changes radically, rate increases will be automatically kept in check and specialists will continue to find resources pulled away from them and directed toward generalists.
Indeed, HCFA estimates that doctors as a whole can expect that Medicare will increase its payments to them only in the low single digits in percentage terms until at least 2008. Moreover, small-scale experiments, such as creating centers for excellence for certain types of procedures, suggest that Medicare, like private payers, will increasingly look to paying doctors based on quality and patient satisfaction wherever possible.
Doctors have gotten so used to sharper increases in rates that they are only beginning to realize that Medicare's central goal is to help seniors gain access to high-quality care, not pay doctors high rates, says Peter Kongstvedt, M.D., a partner in the healthcare consulting practice of Ernst & Young in Washington.
For most of its existence, Medicare paid doctors based on what it considered to be reasonable and customary charges. In practice, this meant that Medicare paid wildly different rates for the same procedure depending on such factors as geographic region and years the doctor had been in practice. Medicare also paid a lot more to specialists to do procedures than to generalists for office visits.
"If you used your mind a lot, you got little; if you used a gadget, you got a lot," says Stuart Altman, professor of national health policy at Brandeis University Institute for Health Policy in Waltham, Mass. The fees for procedures got so excessive that they were no longer justifiable, says Kongstvedt. For example, Medicare paid ophthamologists an average of $517.50 in 1991 for follow-up care after laser cataract surgery, according to a 1999 survey in theNew England Journal of Medicine. In 1997, they received only $247. Or take coronary artery dilation. In 1991, cardiologists received an average of $1,517.42. In 1997, they were paid $833.14.
While some specialists undoubtedly viewed the reductions as a way for Medicare to contain costs, HCFA says the reimbursement is based on the resources doctors use to perform the procedures. This indicates that the cost of undertaking the procedures was far less than what doctors were receiving under the usual and customary payment system.
The changes were a result of a new payment system HCFA adopted in 1992. Instead of paying based on rather arbitrary customary and usual charges, HCFA decided to base its payments on the resources used in delivering a medical service, known as the resource-based relative value system. RBRVS is a formula that attempts to pay physicians consistent with relative differences in the resources used to provide services. It uses three resource inputs: the work of the physician, the doctor's practice expenses and malpractice insurance expenses.
The shift to RBRVS began to be felt soon after RBRVS was implemented, as specialists started getting less of the pie in favor of generalists getting more.
The redistribution was magnified when private payers based their payments on Medicare's methodology, says Al Dobson, senior vice president of the Lewin Group, a consulting company in Fairfax, Va.
"The relative value scale allows you to anchor an entire payment scale," Dobson says. Private payers found it easier to base their payments to doctors on Medicare rates than to individually negotiate rates for specific treatments.
According to a 1996 report by the Medicare Payment Advisory Commission (MedPac), Medicare paid doctors about 70 percent of private rates. MedPac is a nonpartisan legislative agency that advises Congress on Medicare payment issues. The commission was established in 1997 by Congress and is the product of a merger of the Physician Payment Review Commission and Prospective Payment Assessment Commission.
Since then, private payer rates have dropped drastically so that in some parts of the country, such as south Florida, Medicare rates are higher than private rates.
While RBRVS went a long way in helping Medicare pay doctors in a consistent manner, there "was really no constraint on (overall) growth," says Altman. RBRVS as implemented simply did not have a way of recouping excess spending that occurred in prior years. To accomplish this, Congress, as part of the Balanced Budget Act of 1997, approved the sustainable growth rate, which seeks to control the growth in aggregate Medicare expenditures for physicians' services.
Under SGR, which went into effect in 1998, the fee schedule update is adjusted to reflect the comparison of actual Medicare expenditures to target expenditures. If expenditures exceed the target, the update is reduced. If expenditures are less than the target, the update is increased.
The SGR has created a system in which payments will follow a "fairly predictable growth rate in physicians' fees," says Murray Ross, executive director of MedPac.
HCFA has succeeded in slowing the rate of growth in expenditures for physician services, says Marilyn Moon, a senior fellow at the Urban Institute in Washington. Volume performance standards, an ineffective mechanism for controlling growth, were replaced by the SGR.
For example, aggregate spending on physicians actually dropped slightly in 1996, falling to $29.4 billion from $29.8 billion in 1995. By 1998, the most recent year for which data has been gathered, spending reached $31.8 billion.
After hammering out the RBRVS formula to try to value the work of doctors, HCFA began the next step, phasing in RBRVS for their practice expenses over four years beginning in 1999.
Malpractice insurance expenses came under the RBRVS framework on Jan. 1. As was the case in 1992, resources are being shifted from specialists to generalists.
Berenson says that the practice expense shift has had a "modest impact although various (specialty) groups are claiming that it has had a devastating impact." A study by MedPac designed to measure the shift examined 1995 Medicare claims and found that practice expense adjustments for office visits for primary care services increased physician payment rates by 4.3 percent between 1997 and 1998.
Physician payments for cataract lens replacement, by contrast, fell 5.8 percent over the same period.
Specialists, however, point out that on certain procedures, general practitioners are making out like bandits.
Under the current rates, a general practitioner who drains a finger abscess will get $220 in 2002, up from $71 in 1998, a 908 percent increase in practice expense relative values, says Randy Fenninger of the American Urological Association in Washington. Establishing access to a vein, a routine procedure for generalists, will garner $126 in 2002, up from $29 in 1998, a 3,275 percent increase in practice expense relative values, he says.
"The level of this redistribution does not make sense," Fenninger says. HCFA is mandated to make annual refinements and has not done them, he asserts. Fenninger is working with other specialty groups to push Congress to adopt legislation that would stop the four-year transition at this point.
Generalists, for their part, have argued for years that they were getting the short end of the stick and that the move to greater compensation is fair given the amount of brainwork they and their nurses expend to perform their services.
HCFA's Berenson admits that "trying to get objective (practice cost) data that can be allocated into 8,000 CPT codes is very difficult" and necessary in order to establish relative practice costs.
HCFA is relying on data from an AMA survey of practice expense costs, but some specialties weren't surveyed while specialist groups want to provide their own practice expense data to show their true practice expense costs.
Berenson noted that all values calculated for practice expense relative values could be revised down the road. Ross also agreed that "on specific issues, payments may be out of whack." Despite the reallocation of Medicare dollars, and slower overall growth, a MedPac survey shows continued high participation rates in the program, he says. Approximately 90 percent of physicians accept Medicare, according to an AMA survey in the mid 1990s. A MedPac survey in 1997 found that among doctors accepting any new patients, 95.7 percent were accepting new Medicare fee-for-service patients.
Altman agrees that doctors are favorably disposed to Medicare and the 39 million Americans enrolled in the program.
"As much as they bitched about Medicare payments, a lot of doctors feel they are being treated more fairly (under that program) than in managed care."
Medicare moves to managed careDoctors also have felt the pinch of Medicare managed care, created by HCFA at the behest of Congress, which wanted to give seniors more choices than traditional Medicare. Medicare+Choice allows HMOs and others to devise health plans for Medicare enrollees. Doctors who contract with the HMOs thereby get compensated indirectly from Medicare, and those arrangements can vary greatly.
While the enrollment growth rate was quite high in the initial years of the program, growth has slowed to about 5% a year as managed care companies have stopped doing business in different parts of the country, charging that Medicare reimbursement was too low.
Susan Paisano, a spokeswoman for the American Association of Health Plans in Washington, argues that the main problem is that HCFA is spending less and will spend less in that program than in traditional Medicare.
"We are seeing an erosion of purchasing power of health plans," which has led plans to drop about 750,000 enrollees from Medicare+Choice plans in the past two years, Paisano says. More are likely to do so in 2001, she warns. About 6 million seniors currently subscribe to Medicare HMOs, about 16% of the Medicare program's total population of 39 million.
Paisano points to the "unintended consequences" of the Balanced Budget Amendment of 1997, which cut increases in Medicare funding from 6% in 1997 to 2.5% in 1998.
Now that the elements of RBRVS are being phased in and SGR is firmly in place, the only talk about expanding Medicare is related to covering drugs and determining eligibility, meaning doctors should expect no changes in the way Medicare pays them. The phase-in of practice expense formulas could change as temporary resource-based relative values change, but after 2002, that should be complete.
Still, minor changes could be in the offing. For example, MedPac recommended in March that in order to improve payment for physicians' services, HCFA should work with doctors to minimize the complexity of physicians' evaluation and management services and to explore alternative approaches to promote accurate coding of these services.
But the content of the guidelines has been controversial given that they have been revised frequently and that there are many proposed changes. MedPac notes such overly complex and burdensome requirements for physicians as counting formulas that assign points for each element of a physician's service to determine the level at which services can be billed. It also recommended reducing documentation for billing purposes that distracts from the role of the medical record as a tool for communication between physicians. Neither Congress nor HCFA is bound to follow MedPac's recommendations, however.
Like private payers, HCFA also wants to find ways to encourage doctors to improve quality although it has no plans to substantially change the technique currently in place, Altman says.
For example, President Clinton has proposed creating tools in his Medicare reform program to reward quality and create more centers of excellence for heart and knee surgery, in which one payment is made to all of the healthcare providers, Berenson says. HCFA says it is also conceivable that it could make marginal extra payments to doctors based on patient satisfaction or longer office hours if Congress approves.
Moon says, however, that "despite the rhetoric, we have not seen as much innovation as we should be getting" at HCFA.
Finally, doctors are concerned about how they will fare if Congress expands Medicare benefits to cover drugs or approves any other large spending changes, says Paul Ginsburg, president of the Center for Studying Health System Change in Washington.
Both Democrats and Republicans say that a drug benefit will be paid out of the budget surplus, but providers fear they will be on the chopping block as they were three years ago, when lawmakers passed the Balanced Budget Amendment, which slowed the growth of Medicare spending.
"Providers learned that anything that involves a lot more spending or a lot more unexpected spending potential means that rates are on the table for cuts," Ginsburg says.
Furthermore, if economic growth slows and tax revenues drop accordingly, keeping the budget from going in the red will be that much more difficult and "will mean pressure on overall rates."