APRIL 10, 2006 -- The Medicare program is projecting a 4.6 percent payment cut for physicians next year due to higher spending on physician services.
Increased Medicare spending on evaluation and management services, imaging, and laboratory and other tests all helped fuel the proposed payment reduction, according to a letter the Centers for Medicare and Medicaid Services sent to the Medicare Payment Advisory Commission (MedPAC), which advises Congress on Medicare payment issues.
Medicare spending on physician services grew 8.5 percent in 2005. Growth in the volume and intensity of physician services represented 7.5 percentage points of the 8.5 percent growth in total physician spending, CMS Center for Medicare Management Director Herb B. Kuhn wrote in an April 7 letter to MedPAC Chairman Glenn M. Hackbarth.
American Medical Association Chairman Duane M. Cady said the proposed 2007 reduction will be the first in a series of cuts that will total 34 percent over the next nine years while physicians' practice costs will increase 22 percent.
"The government is asking physicians to do the impossible: Keep seeing patients and improve the quality of care, while accepting drastic cuts that don't come close to covering the cost of health care," Cady said in a statement. "Many physicians are left with no choice but to limit the number of Medicare patients in their practices."
Medicare physicians were supposed to have their payments cut 4.4 percent on Jan. 1, 2006, but Congress froze that payment cut as part of the budget reconciliation package (PL 109-171) passed late last year before adjourning.
In 2005, increases in Medicare spending for evaluation and management services accounted for 31 percent of the overall physician spending growth, while increases for spending on imaging services accounted for 27 percent. Spending on laboratory and other tests accounted for 15 percent of the overall spending growth, according to CMS. Spending on procedures made up 29 percent of the overall spending growth. Within the category of "minor procedures," the fastest-growing procedures include physical therapy, podiatry, and dermatology, CMS said.
Medicare payment rates for physicians are updated annually by a calculation based on inflation in physician costs and then adjusted further according to how Medicare spending compares with a target rate of growth, known as the sustainable growth rate (SGR). If spending is less than the SGR, doctors' payment rates are increased. If the costs are more than SGR, doctors will see a reduction in rates they are reimbursed.
While there is great dissatisfaction in Congress with the SGR formula, there is little momentum to overhaul it this year. But Congress could act to reverse the scheduled cut for 2007.
In recent years, Kuhn wrote, high rates of volume and intensity increases of 6 to 8 percent per year have exceeded the average annual 2 percent increase in the statutory volume and intensity factor in the SGR formula during the same years, resulting in negative Medicare updates for physicians.
CMS' current estimate of the sustainable growth rate for 2007 is 0.7 percent.
The figures, Kuhn noted in the letter, are preliminary and may be revised as more complete data become available.