Senate Democrats

Fixing Medicare Payments to Physicians, Laying the Groundwork for Health Insurance Reform

As America’s senior population grows, the demand for physicians who treat Medicare patients will also increase.  Currently, Medicare payments to physicians are scheduled to be reduced by 21.5 percent in 2010, which could make it difficult for physicians to continue treating Medicare beneficiaries.  By eliminating this drastic cut in physician reimbursement, Congress can help ensure that doctors continue to see Medicare beneficiaries and create a more honest budget baseline for consideration of health insurance reform legislation. 

Medicare Physician Payment Formula is Flawed

The Sustainable Growth Rate (SGR) was an effort to constrain Medicare payments to physicians.  The Sustainable Growth Rate (SGR) was created as part of the Balanced Budget Act of 1997 (P.L. 105-33) to determine the annual update to Medicare physician payment rates.  The SGR established an expenditure target pegged to growth in the Gross Domestic Product (GDP) in an effort to ensure that Medicare spending on physician services did not grow faster than the overall economy.  The formula cuts future physician payments if today’s physician spending exceeds the target level, based on economic growth. 

The SGR is ineffective, widely criticized, and broken.  The Medicare Payment Advisory Commission (MedPAC) has found, “in recent years, expenditures for physician services have grown substantially, suggesting that the SGR does not provide a strong check on spending.  It does little to counter the inherently inflationary nature of fee-for-service payment.  In addition, the SGR is inequitable, treating all providers – regardless of their behavior – and all regions of the country alike.” [MedPAC, 3/2007]

Medicare Physician Payment Formula Calls for Large Cuts in 2010

and Beyond

Without Congressional action, Medicare payment to physicians will be cut 21.5 percent next year.  The SGR has called for cuts to Medicare physician payments in each of the last eight years.  Because these cuts are cumulative over time, physicians are scheduled to receive a 21.5 percent cut in 2010, with cuts of approximately 5.5 percent each year beginning in 2011 through 2014. [2009 Medicare Trustees Report, 5/12/2009]  The Congressional Budget Office (CBO) estimates that, “By 2014, the cumulative reduction in the rates will be about 40 percent. [CBO, 3/27/2009]

Medicare payments to physicians are already substantially below payments by private insurers.  MedPAC also found that, in 2007, Medicare payment for physician services was, on average, 80 percent of private insurer payments. [MedPAC, 3/2009]

The Senate Prevented Past Cuts and Must Act Now to Prevent Future Cuts

The Senate has prevented significant reductions to Medicare physician payment.  The Senate has acted six times in the last seven years to prevent pay reductions for doctors that see Medicare beneficiaries. [2003: S.V. 34, S.V. 459; 2005: S.V. 363; 2006: S.V. 279; 2007: P.L. 110-73 passed by UC; 2008: S.V. 177]

If cuts take effect, it is possible that fewer physicians will treat Medicare beneficiaries.  Recently, the Mayo Clinic announced it would accept fewer Medicare patients in the future.  The Mayo branch in Arizona announced “…it would no longer accept Medicare for patients seeking primary care at its Glendale facility.  That facility, with 3,000 regular Medicare patients, will continue to see them for advanced care — Mayo’s specialty — but those seeking primary care will need to pay an annual $250 fee, plus fees of $175 to $400 per visit.” [Washington Post, 10/13/2009]  “Mayo officials made the decisions because of low payment rates by Medicare and Medicaid rates and said Medicare reimbursement rates should be changed….” [Kaiser Health News, 10/13/2009]

·         Sixty percent of physicians will limit the number of Medicare patients they see if payments are cut.  A 2007 survey conducted by the American Medical Association (AMA) found that, when faced with payment cuts of 10 percent, 60 percent of physicians planned to limit the number of new Medicare patients they treat and more than two-thirds of physicians would defer investments in their practice, such as the purchase of information technology. [AMA, 2/2008]

·         Payment cuts jeopardize access to care for seniors and military families.  Medicare physician reimbursement cuts of the magnitude called for next year will jeopardize access to care for 42 million seniors and individuals with disabilities in Medicare and for more than nine million uniformed service members and their families, because TRICARE sets physician payment rates in accordance with rules used by Medicare.

Eliminating the SGR is Consistent with Current Policy, Lays Foundation for Real Reform

Administration’s Fiscal Year 2009 Budget reflects real expectations regarding Medicare physician payment.  Because Congress has cancelled cuts called for by the SGR in the past, President Obama’s Fiscal Year (FY) 2009 budget baseline assumes that cuts will be also be cancelled in the future.  This policy reflects the more realistic assumption that Congress is unlikely to allow substantial cuts to Medicare physician payments to take effect.  The result is a budget that does not understate projected Medicare spending by assuming scheduled cuts will be allowed to take effect, unlike the Congressional Budget Office’s (CBO) required budget baseline.

Eliminating the SGR does not increase spending over recent trends.  Congress has averted scheduled payment cuts in each of the last seven years.  Eliminating the SGR is a more realistic and sustainable policy than yet another short-term fix that simply causes larger payment reductions in the future.  Eliminating the SGR does not increase spending over recent trends, but realistically projects current spending levels into the future.

Eliminating the SGR is consistent with current policy.  Eliminating the flawed Medicare physician payment formula allows Medicare spending to be treated in the budget similarly to the treatment of discretionary spending, with CBO assuming that Congress will spend at least as much in the future as it does today.

Eliminating the SGR is a policy supported and championed by America’s physicians.  Physicians across the country and across medical specialties have called for repeal of the SGR, including the American Medical Association, the American Academy of Family Physicians, the American College of Obstetricians and Gynecologists, the American College of Physicians and the American College of Surgeons, to name a few. 

Eliminating the SGR reduces legislative vehicles for other new spending.  The almost annual bills to block Medicare payment reductions to physicians have become vehicles for additional spending, unrelated to blocking the payment cuts. 

Republicans Agree, Medicare Physician Payment Formula is Broken

Senator Kyl: “We should be bending over backward…to encourage physicians to take care of Medicare patients.”  “Now, we already know that a lot of physicians are having second thoughts about treating Medicare patients, in fact, a lot have decided not to treat Medicare patients.  I think, Mr. Chairman, we should be bending over backward to provide every incentive we can to encourage physicians to take care of Medicare patients.” [Senate Finance Hearing, CQ Transcripts, 9/29/2009]

Senator Kyl: Reducing Medicare payments to physicians only adds “to the access issues” in Medicare.  “My office regularly gets phone calls from seniors who have been turned away and the Arizona Medical Association informs me that proposals that would already reduce or – excuse me – that would reduce already low reimbursements would only add to the access issues that Arizona seniors have.” [Senate Finance Hearing, CQ Transcripts, 9/29/2009]

Senator Grassley: “Doctors and physicians are underpaid by public plans.”  “Doctors and physicians are underpaid by public plans and try to make up the difference then by overcharging private payers and then that makes everybody else’s premiums go up.  As the base of private payers shrink, doctors will either have to charge them increasingly more and continue — or continue to be reimbursed at increasingly lower levels or even stop seeing public payer patients entirely.  And just think of the increasing number of doctors in America that don’t want to see Medicaid patients first of all, that’s the worst situation, but it’s becoming even a worsening situation in the case of Medicare.” [Senate Finance Hearing, CQ Transcripts, 9/29/2009]

Senator Hatch: Medicare doctors face a 20 percent pay cut and “every year we’ve got to fix it so seniors can continue to get care.”  “Now we have a broken doctor payment system in Medicare that has to be fixed every year.  It’s a disgrace.  Every year we’ve got to fix it, so seniors can continue to get care.  This year alone, this broken formula calls for more than a 20 percent cut.” [Senate Finance Hearing, CQ Transcripts, 9/29/2009]