Doctors, medical associations and lawmakers are scrambling to soften the blow of an announced 5.4% cut in Medicare reimbursements for outpatient care, set to take effect Jan. 1.
Whether the lobbyists and lawmakers will have time to have an impact before the first of the year remains in doubt, however.
"These are circumstances that cannot continue because we're going to see (medical) groups disappearing," says AMA President Richard Corlin, M.D., a Santa Monica, Calif., gastroenterologist. "I think that we will see that significant numbers of physicians will drop out of Medicare."
The Centers for Medicare and Medicaid Services says it is cutting the 2002 conversion factor--the payment per relative value unit--by 5.4%, to just under $36.20 from the current level of just under $38.26. RVUs are estimates of practice expenses for various billable procedures set by a complex CMS formula.
Beginning next month, all Medicare RVUs will be resource-based rather than charge-based, as a four-year transition period mandated by the 1997 Balanced Budget Act comes to an end.
In the final rulemaking, published Nov. 1, HHS says its fee increases were higher than they should have been in 2000 and 2001 because of a flaw in its calculation of the sustainable growth rate. The BBA requires HHS to tie Medicare reimbursement updates for physicians to estimated real growth in per capita gross domestic product. Officials admit they left out several new CPT codes that should have been added to the formula over the past three years.
"It's a very difficult system that nobody truly understands," says Lawrence Goldberg, the national healthcare affairs director for Deloitte & Touche.
In 2002, the sustainable growth rate brings reimbursements down by 4.8%, while budget adjustments are responsible for an additional 0.6% cut, according to CMS.
"I don't think anybody thought that this would turn out to be a negative number," Goldberg says. "When they figured out the sustainable growth . . . they were expecting physicians to keep costs under control and to see more patients."
Physician costs, however, keep growing. The Medical Group Management Association, the Englewood, Colo.-based organization representing small to medium-sized practices, says that expenses for the average multispecialty physician group increased by 6.2% in 2000.
"The problem is that Medicare wants to control its outlays but it doesn't know how to control volume," Goldberg says. "The Medicare program has a very difficult challenge in that it needs to balance higher costs with rising utilization."
Goldberg also wonders how CMS might respond to a crisis that boosts utilization well beyond estimates. "What happens if you get a flu outbreak?" he asks.
Anders Gilberg, a Washington lobbyist for the MGMA, says that the sustainable growth rate is a mere target. If spending on physician services changes measurably, the SGR can be revised, but likely not until CMS sets its rates for 2003, nearly a year from now.
Seeking a last-minute bailout for Medicare providers, Sens. James Jeffords (I-Vt.) and John Breaux (D-La.) introduced legislation last month to set the 2002 conversion factor at 0.9% below the 2001 level, or a bit more than $37.91 per RVU.
According to the AMA's Corlin, "0.9% still is a cut, but it's a cut that can be lived with."
Gilberg says the proposal "would give us some time to go fix this problem." But, he says, "It's a short-term fix for a long-term problem."
The bill, touted as the Medicare Physician Payment Fairness Act of 2001, also would require the Medicare Payment Advisory Commission to study alternatives to basing future payment schedules on GDP.
The bill is in the Senate Finance Committee awaiting action. But with national security and the economy much higher on the agenda and with Congress eyeing its Christmas vacation, action on the legislation is uncertain.
"It's hard to believe that they're going to figure this out in time," Goldberg says. "I don't think it's going to be fixed by Jan. 1."
Still, those on the provider side remain optimistic. A coalition of 79 national medical organizations, representing more than 1 million healthcare professionals, signed on to a Nov. 14 letter to Senate leadership urging quick action on the legislation.
The letter says the CMS cut "stems from a fatally flawed formula that punishes physicians for economic downturns and from CMS data errors that have shortchanged physicians by $15 billion since 1998 and 1999."
If the 2002 cuts hold, they would be the fourth reduction in practitioner fees since 1992. Meanwhile, Medicare rates will lag 13% below federal estimates of practice cost inflation over that time period, according to the AMA and the MGMA. Corlin, the AMA president, says physicians were underpaid by a total of $3 billion in 1997 and 1998.
"This is an emergency that (lawmakers) have to address," Corlin says.
The Medicare cuts also stand to hurt physicians with private payers, according to analysis by HealthCare Computer Corporation of America, a Denver-based publisher of managed care-related newsletters.
Backlash against managed care in recent years has led many healthcare providers to insist that commercial insurers tie their reimbursement schedules to Medicare's resource-based relative value scale so payers can't set arbitrarily low rates. With the decline in Medicare RBRVS, some physicians may find their strategy backfiring after Jan. 1, depending on the language in HMO contracts, the company says.
"That's the ripple effect here," says MGMA's Gilberg.
With the combined effect of lower Medicare reimbursements, sharply higher liability insurance costs and increased regulatory burdens on physicians, "it's creating the Bermuda Triangle of medical practices," Corlin says. "You'll see facilities going in but not coming out."