Cutting the safety net

Physicians face a 10-percent cut in Medicare fees in 2008.
It’s déjà vu all over again …

When TAFP Past President and AAFP Board member Roland Goertz, M.D., tried to find a family doctor for his 89-year-old mother-in-law, he got a glimpse of what the near future could be like for senior citizens seeking care. The Waco physician and his family had decided to help his wife’s mother move into an apartment complex in New Braunfels that catered to elderly tenants. She would need a new physician, so Goertz began making calls. Unfortunately, what he found did not come as a surprise. None of the practices he contacted was accepting new Medicare patients.

“What I heard from everyone I talked to was that when they did the analysis of their practices and looked at what they get paid for routine codes, they were losing money for every Medicare visit they saw,” Goertz says. According to data collected by the Texas Medical Association, Medicare fees cover about 65 percent of the cost of providing services. On average, physicians lose between $20 and $35 on typical Medicare office visits.

“You know, you can’t run a practice if you give money away,” Goertz says. “You can’t run any business that way.”

Eventually Goertz found a colleague in the area who agreed to take his mother-in-law as a new patient, but a growing number of Medicare patients report that they are having problems finding primary care physicians to care for them. With the impending swell of baby boomers entering their golden years and the number of physicians planning to retire in the next decade, physician associations, patient advocacy groups and even some governmental organizations warn that many more patients will experience the trouble Goertz found if something isn’t done to fix the method used to determine physician payment rates for Medicare.

Under the current system, physician fees are set by applying a complex economic formula that AAFP says is “fatally flawed.” As a result, fees paid to family physicians today haven’t changed much since 2001 while the cost of providing services has increased significantly. For the past few years, physicians have been forced to fight tough end-of-year battles to stave off steep cuts only to find they face worse threats in the following budget cycle. 2008 will be no exception.

In early July, the Centers for Medicare and Medicaid Services called for a 9.9-percent cut in physician payment as part of its proposal for Medicare spending in 2008. The American Medical Association says that 60 percent of doctors surveyed would be forced to limit the number of new Medicare patients they accept if that cut goes into effect. Even worse, CMS and the Medicare Board of Trustees project that under the current payment formula, physicians would face reductions of about 5 percent each year until 2016. That means physicians would be paid 40 percent less for Medicare services in 2016 than they receive today.

According to TMA, access to care for Medicare patients is already a problem. A 2006 TMA survey shows that only 62 percent of Texas doctors said they take all new Medicare patients. That number is down from 78 percent in 2000. Physicians report that they drop Medicare because of the low rates of reimbursement and because the program is administratively burdensome.

These problems are particularly acute for primary care physicians who receive much less compensation for their service than subspecialists. Payment rates vary by geographical region but on average, family physicians earn about $82 per half hour for evaluation and management services while ophthalmologists performing cataract surgery receive more than $680 per half hour and gastroenterologists providing colonoscopies receive more than $280 per half hour, according to an AAFP News Now report. Since most health insurance plans base their fee schedules on Medicare rates, the undervaluation of primary care services extends to the majority of managed care contracts held by family doctors. As the income gap widens between family physicians and subspecialists, is it any wonder that half as many U.S. medical school graduates go into family medicine today than 10 years ago?

The Resource-Based Relative Value Scale

When physician organizations call for reform of the Medicare physician payment system, they decry the SGR, or Sustainable Growth Rate, but to understand how a replacement for this flawed formula could close the gap between cognitive primary care and high-priced procedures, one has to review the evolution of the Medicare physician fee schedule. In the 1980s, Medicare based its fee schedule on a payment methodology called “customary, prevailing and reasonable,” or CPR. Health policy analysts criticized the scheme for being “highly inflationary, complex, unpredictable and inequitable,” according to a 1989 article by James G. Jones, M.D., in American Family Physician.

Harvard economist William Hsiao, M.D., proposed a payment system that would assign values to medical services based on the cost of resources needed to provide them. In Jones’ article about Hsiao’s Resource-Based Relative Value Scale, he wrote, “If implemented as proposed, the RBRVS would have a profound impact by assuring more equitable reimbursement for the traditionally undervalued cognitive services that family physicians provide. … It may well serve as the model for the nation’s private insurance programs and as the model for how physicians are reimbursed into the next century.” He was right about RBRVS becoming the model for most private insurers but hopes that the new system would bring about equitable reimbursement for primary care physicians would soon be dashed.

In 1992, CMS put the RBRVS into place and over the next five years, Medicare payment to family physicians increased by 35 percent. Since 1997, the rate of increase has dropped significantly, with Medicare payment to physicians increasing by 15.6 percent while the cost of providing services has increased by 27.5 percent. In comparison with specialty care, primary care services remain undervalued.

Under the RBRVS, provider fees are determined by considering three components that make up the cost of providing services: physician work, practice expense and medical liability insurance. These three components are translated into relative value units, or RVUs. Those are then adjusted to account for geographic differences in resource costs and multiplied by a monetary conversion factor to derive the amount of payment. So one way to increase payment for primary care would be to increase the RVUs for CPT codes primary care physicians use, such as evaluation and management codes. Who sets the RVUs? Good question.

Each year, an advisory committee called the Relative Value Scale Update Committee, or RUC, convenes to make suggestions to CMS on how many RVUs new CPT codes should be worth. Every five years, the RUC considers recommended RVU changes for all CPT codes. Of the RUC’s 26 voting members, only three represent primary care specialties. Contrast that level of representation with the fact that primary care physicians handle almost half of all Medicare patient visits and you’ll begin to understand why many health policy analysts believe the system is biased against raising the value of primary care services or reconsidering the value assigned to high-priced procedures.

The fact that most private insurers base their fee schedules on the RBRVS only exacerbates the payment dilemma for primary care physicians. A study contracted by MedPAC found that private insurers paid primary care physicians an average of 104 percent of the Medicare fee for office visits while they paid on average more than 119 percent of Medicare fees for surgical codes, imaging codes and diagnostic procedures, according to a February 2007 article in Annals of Internal Medicine. The article concludes that the payment gap between primary care physicians and specialists is wider in private insurance than it is in Medicare.

The Sustainable Growth Rate

As part of the Balanced Budget Act of 1997, Congress introduced the SGR to control the growth of Medicare spending. The SGR sets a spending target for physician services with the idea that government can control utilization of those services by regulating fees. If spending at the end of the year exceeds the target, Medicare adjusts the monetary conversion factor in the payment formula to compensate for the extra expense. The problem is that cutting physician fees doesn’t change patient demand and under the SGR, the more utilization goes up, the more fees go down. As aging baby boomers with more chronic conditions begin to enroll in Medicare, there is no question that utilization will continue to go up.

Over the past several years, utilization of imaging services, diagnostic screening and procedures has increased significantly, pushing overall Medicare physician payments past the target set by the SGR. Because of that, Medicare was supposed to cut fees in 2006 and 2007. Congress stepped in at the last minute to stop both cuts but in effect, all they did was kick the can down the road. The cuts were just pushed into the following year, leaving the country with a substantial bill to pay in 2008.

A fix for 2008 and beyond?

Fixing the Medicare payment system to avoid that bill is not a partisan issue. Members from both sides of the aisle understand what’s at stake and are championing the cause in two important House committees. U.S. Rep. Michael Burgess, M.D., of Texas’ 26th District serves on the Subcommittee on Health of the House Energy and Commerce Committee. An obstetrician by profession, Burgess has fought for Medicare physician payment reform since he took office. “I am concerned that should these cuts go into effect, many doctors will opt out of Medicare, leaving millions of seniors without access to a physician for critical health services,” he says.

A bill drafted by the House Energy and Commerce Committee and the House Ways and Means Committee would halt next year’s scheduled 9.9-percent cut, replacing it with 0.5-percent updates for physician payment in both 2008 and 2009 at a cost of about $30 billion. But these measures are part of the bill that would reauthorize the State Children’s Health Insurance Program, which has become mired in ideological politics. AAFP has always called for a total repeal of the SGR, but that is probably not in the cards at present. According to the Congressional Budget Office, doing so would cost about $318 billion.

The bill, called the Children’s Health and Medicare Protection Act of 2007, or CHAMP, also includes some other reforms that could represent a major step toward pulling down the SGR and eventually establishing a payment update based on the Medical Economic Index, which measures the cost of providing medical services. Kevin Burke, director of the AAFP Division of Government Relations, says the bill would divide physician payment rates into six different categories of services, allowing primary care and preventive services to have their own conversion factor separate from those of other specialties. Each category would still be subject to a target expenditure, but in theory, those targets would be more easily adjusted based on the circumstances of those services. The CHAMP Act also includes a 3-percent increase in the target expenditure for primary care and preventive services, which Burke says is a clear indication that the House committees of jurisdiction want to support primary care.

Representing Texas’ 25th Congressional District, U.S. Rep. Lloyd Doggett sits on the health care subcommittee of the House Ways and Means Committee. He says the proposal is an interim path that would eventually lead to a more permanent reform of the current payment system. “We need to ensure primary care physicians are able to provide care management and coordination, and be adequately compensated for taking care of their patients,” Doggett says. “The payment reform we’re hoping to achieve is a short-term fix while we look at long-term solutions to physician payments.” He says splitting the single expenditure target—the SGR—would be like giving each service category its own “bucket.” “This means that high volume growth in one bucket would not affect the payment rate of services from another bucket.”

While this categorization of services appears to offer some benefits for primary care physicians, some worry that the plan could backfire. For example, if utilization for certain preventive services increased dramatically causing a hike in payment in the primary care silo that exceeded the target, primary care physicians would face a cut all by themselves. That school of thought holds that the utilization targets have always been flawed under the aggregate, but they could be even worse when divided into smaller categories.

Whether this analysis has merit may never have a chance to be tested. In the parlance of politics, the CHAMP Act is a moving target and plenty of shooters are taking aim. The money to pay for the bill would come from a 61-cent increase in the federal cigarette tax, a prospect that representatives from tobacco-producing states are loath to permit. The rest of the money would come from the elimination of all subsidies to Medicare Advantage plans, private managed care organizations tapped to administer benefits for certain Medicare recipients. The federal government pays the plans an average of 112 percent of the Medicare fee-for-service rate under the assumption that those plans will increase efficiency in the Medicare program. The Bush administration wants to protect these subsidies and will likely fight for their funding.

If that weren’t enough, the bill contains a couple of poison pills that have raised serious concerns among certain medical specialists. One provision prohibits physicians from self-referring to hospitals in which they have ownership. That applies to all hospitals, not just specialty hospitals, and the only hospitals that would receive a grandfather exception are those operating under Medicare agreements at the time the bill was filed. Another provision establishes an accreditation process for diagnostic imaging facilities and reduces the payment for imaging services. These measures could divide physician support for the bill, making it difficult to pass.

If the CHAMP Act makes it through the House in its current form, the Senate version of the SCHIP reauthorization bill contains none of the Medicare physician payment reforms, which means lawmakers from both bodies will hash out the differences in a conference committee. AAFP’s Kevin Burke says the Senate has problems with what the House is proposing. “And then there is a potential presidential veto at the end of the trail,” he says. President Bush has already threatened to veto the Senate’s SCHIP reauthorization because it seeks to expand the program.

Should the CHAMP Act fail, organized medicine will once again be forced to fight a threatened cut to Medicare physician rates once Congress reconvenes for the fall session. “A cynic would say that there are plenty of forces out there who benefit by having physicians spend all of their energy and political capital fighting Medicare cuts at the end of the year,” says Tom Banning, TAFP’s incoming chief executive officer. “There’s probably something to that. It distracts from our ability to focus on other important issues like managed care reforms, workforce adequacy and addressing the uninsured.”

Physicians should take heart, though. The message AAFP, TAFP and allied organizations have been sending is being heard in the halls of government. Congressman Doggett says that making sure senior citizens and people with disabilities have access to primary care physicians is a top priority for him and others serving on the Subcommittee on Health in the House Ways and Means Committee. “I’m hopeful that we can reach a consensus on this legislation,” he says. “Doctors are facing a huge cut next year. This cut comes up every year, and every year we have to avert the crisis by passing legislation. We’re trying to take a long-term approach to this problem, and I think the physician community and folks in Washington are interested in making that happen.”