With no tangible solution in sight to fix, repeal or replace Medicare’s sustainable growth-rate formula for paying physicians, hospital executives are worried their own payment system will be put on the chopping block to compensate for a billion-dollar problem.
The concern is that Congress will want to tap into hospitals’ reimbursements somehow to pay physicians more through Medicare.
That’s a hypothetical scenario right now, but the reality is that Congress created a payment formula for physicians that doesn’t work, said Chip Kahn, president of the Federation of American Hospitals. "The question is whether Congress is going to ask everyone else to help solve their problem."
A multitude of options have been proposed inside the Beltway to fix the formula—the current expenditure target that Medicare uses to set physician payments each year—though none has taken hold. But there are increasing signs that Congress wants to make a change, which would eliminate the need to pass a legislative fix each year.
The sustainable growth-rate formula sets physician fees based on the extent to which actual spending aligns with specified targets. Because spending has exceeded the targets in recent years, the formula since 2002 has called for negative payment updates, most of which have been averted through congressional action, resulting in either minimal or no positive updates for physicians.
Physicians in 2008 face a 10% payment cut under the current formula.
Hospital industry representatives are shoring up defenses to protect their own reimbursements. Medicare Payment Advisory Commission data have already shown that hospitals are losing on Medicare business, Kahn said. "There’s no policy justification to reduce payments to one set of providers because Congress miscalculated the formula for another set of providers."
Bill Petasnick, American Hospital Association chairman-elect and president and chief executive officer of Froedtert & Community Health,Milwaukee , said the problem has been driving growth of specialty hospitals, imaging centers and ambulatory surgical centers, a trend that has been leading to access problems.
Physicians are not being adequately compensated for the work they do, and Medicare payments are not addressing that issue, so they’re seeking new ways to supplement their income, Petasnick said. In his view, facilities such as physician-owned specialty hospitals lead to "cream skimming" of patients and more revenue-rich procedures being removed from the hospital base.
This increases costs for everyone, not to mention drives inappropriate utilization of procedures, he added.
It’s no secret that replacing the sustainable growth-rate formula would cost billions of dollars to the federal government and Medicare beneficiaries. No matter how you construct a spending target, whether it’s lumping all providers into a newly created expenditure target or repealing the formula entirely, the bottom line is you’d still have a $250 billion-plus spending deficit, said Robert Doherty, senior vice president for governmental affairs and public policy with the American College of Physicians.
That’s the price tag you’re looking at if you want to get all physicians into positive updates, he said.
Congress’ new "paygo" system—which requires that any newly proposed expenditures are offset either by commensurate revenue increases or by reductions elsewhere in the budget—makes other providers particularly vulnerable to a "rob Peter to pay Paul" situation, according to sources in the provider community. To get rid of the sustainable growth-rate formula, Congress would have to cut somewhere else to pay for that deficit, and other providers, such as hospitals, are likely to be concerned that that money may come at their expense, Doherty said.
The AHA believes this is a critical issue, "and we continue to support the prevention of Medicare pay cuts to physicians. However, we would oppose hospital payment reductions as an offset to provide that change," said Alicia Mitchell, spokeswoman for the AHA. "How Congress addresses that issue remains to be seen."
At this point, lawmakers on Capitol Hill don’t seem to have a ready answer. Even the outspoken Rep. Pete Stark (D-Calif.), who chairs the House Ways and Means health subcommittee, seemed at a loss for words—and answers—at a hearing last week. "We have to do something in terms of physician reimbursement, but it’s hard to say what path we’ll take. I’m not sure in the order of how we’re going to deal with this yet," he said in an interview after the hearing.
Issuing another temporary fix is an alternative, "But hopefully we can do more than that," he said, conceding that budget constraints put a damper on any solution.
Capitol Hill was looking to MedPAC for answers, but the commission, which issued a special report to Congress on sustainable growth-rate formula alternatives several weeks ago, wasn’t able to deliver a specific recommendation because its members couldn’t reach a consensus on which approach would be the best one to take. The report’s lack of focus took some heat from several members of a House Energy and Commerce Committee panel last week, who, according to news reports, thought the commission should start over and produce a more solid recommendation.
The conflict is that some commissioners oppose expenditure targets, but others believe they’re beneficial—that they limit rate increases and provide leverage to providers to embrace reforms they might otherwise oppose, MedPAC Chairman Glenn Hackbarth testified in congressional hearings.
MedPAC instead offered two "paths" for revamping Medicare’s physician payment system: full repeal, which the Congressional Budget Office has estimated would cost the federal government and Medicare beneficiaries billions of dollars, or replacing the formula with a new expenditure target.
Replacing the formula with annual updates based on inflation would increase payment rates for physicians by about 2% annually, instead of reducing payments by approximately 10% in 2008, and 5% annually for several years after that. However, it would also cost the federal government $262 billion over 10 years, plus $70 billion in higher costs for beneficiaries, unless they were shielded from the impact. In that case, the total cost to the federal government would be $330 billion over this time period, the CBO claims.
If Congress were to choose a new expenditure system, MedPAC believes the target should apply to all providers—not just physicians. "Medicare has a total cost problem, not just a physician cost problem," Hackbarth told the House Ways and Means health subcommittee last week.
The commission also suggested that rewards and penalties be distributed on a geographic basis, since different parts of the country contribute differently to volume and expenditure growth, and that Medicare should provide data on resource use to individual physicians and group practices to inform them of their practice patterns.
But to save up enough money to get all physicians into positive updates under regional targets, "You would have to cut payments so deeply in high-growth areas to create even small positive updates in slow-growth areas," Doherty said. From a political perspective, a member of Congress representing a high-cost area may not be inclined to vote for this type of spending target, he said.
Hackbarth acknowledged that expenditure targets weren’t enough to improve physician practices and patient care, and that Medicare should be working to change physician payment incentives by linking payments to quality, and encouraging coordination of care. One option is to allow shared "accountability arrangements," such as gain-sharing, between hospitals and physicians, which could potentially increase the willingness of physicians to collaborate with hospitals to lower costs and improve care, he said.
The bottom line is Congress needs to make a "major new investment" in Medicare’s capability to implement and refine fee-for-service payment systems to reward quality and efficient use of resources, while improving payment equity, Hackbarth said.
Physician and hospital groups believe that the defective method of paying physicians needs to be thrown out first, before implementing reforms. The current system doesn’t work, said Cecil Wilson, chairman of the American Medical Association board of trustees. Instead, "Congress should ensure that physicians are reimbursed like every other provider, based on practice costs."
If gain-sharing is a way for physicians to tap into payments with no contribution to physicians on the fee side, "That’s misguided," Kahn said. The key is o get all providers on a level playing field "and make them all fully funded, and then move money around to achieve policy goals."
Under the latest congressional intervention, the physician payment rate from 2006 was maintained for 2007. Doherty noted that this actually represents a pay cut, if you take into account that labor and other costs of delivering care continue to increase.
If Medicare keeps driving down what it pays doctors, the results will affect not just the physician community but the patients and other payers, he said.
Some doctors might get out of Medicare entirely, and others might cost shift, he said. For example, physicians may raise rates to the other patients they see to offset the money they’re losing on Medicare patients or they may raise their rates to one of their private insurers, who in turn will charge higher premiums to employers or individuals.
For now, hospitals may not be the primary target as a revenue source for physicians.
Bruce Vladeck, interim president of the University of Medicine and Dentistry of New Jersey, and a former administrator of the CMS’ predecessor, the Health Care Financing Administration, offered that Congress seems more interested in cutting reimbursement to Medicare Advantage plans to increase payments to physicians. "I think hospitals are afraid that if the Medicare Advantage plans somehow avoid being the major contributor to fund this, they’ll be the next place people look."
Unsurprisingly, insurers aren’t keen on that idea. "We recognize that payments to doctors, hospitals and other providers in Medicare are very important to ensure services to beneficiaries," said Mohit Ghose, a spokesman for America ’s Health Insurance Plans. "However, to consider taking away the access and services and better benefits and lower out-of-pockets costs that 8 million seniors are receiving" through Medicare Advantage plans, would not be the best way to fix other payment problems. "That’s the point we’re going to continue to make on Capitol Hill," Ghose said.
In any case, this could end up being a political food fight among providers and insurers over who suffers the fallout from whatever Congress proposes, Vladeck said.
No matter what approach lawmakers ultimately take, it won’t make the physicians happy, Stark said. "I’ve been in this business for 34 years, and they’ve never been happy with what we’ve given them."