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Health Biz: Rethinking the Payment Formula

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WASHINGTON, May 06, 2004 (United Press International via COMTEX) -- Physicians could face 5 percent reimbursement cuts from Medicare in 2006 and beyond -- a threat that has lawmakers seriously considering whether the payment formula, called the Sustainable Growth Rate, really is sustainable.

The SGR was set up in 1992 to control spending by reducing physician fee updates or increases once spending growth hits a target amount. It worked -- too well -- and lawmakers in 2002 were forced to override the SGR or doctors would have faced a 5.4 percent cut. Physician payments increased in 2003 and 2004 as well, and will do so in 2005 because lawmakers again intervened.

Bruce Steinwald, director for healthcare and Medicare payment issues at the U.S. General Accounting Office, testified before the House Energy and Commerce Health subcommittee Wednesday that the Medicare Trustees Report this year projects the update at negative 5 percent for seven years, beginning in 2006. This translates into a cumulative reduction in physician fees of more than 31 percent from 2005 to 2012, while their cost of providing services is expected to jump by 19 percent.

Volume and intensity growth in Medicare also has cast the SGR system in question, he said, because "if the growth in real spending per beneficiary is not lowered through other means, SGR will mechanically reduce fee updates in an attempt to impose fiscal discipline and moderate total spending increases. Although this mechanical response may be desirable from a budgetary perspective, any consequences for physicians and their patients are uncertain."

So the question becomes what to do.

Douglas Holtz-Eakin, director of the Congressional Budget Office, testified that the Medicare Payment Advisory Commission has recommended the 2005 payment update be set at the change in input prices, minus an adjustment for productivity.

"The Senate-passed version of the pending budget resolution contains a sense-of-the-Senate provision that endorses permanently adopting that approach to updating physician fees," Eakin told legislators. "Such updates would increase Medicare spending by about $95 billion through 2014 if they were implemented in 2005, by CBO's estimate, and by $90 billion if they were implemented in 2006."

Eakin said there are three options under discussion in modifying the SGR:

-- accelerate spending near-term and allow the SGR to recoup it down the road,

-- increase the SGR targets, or

-- replace the SGR with annual updates based on inflation.

He said using the inflation method would increase Medicare spending by $90 billion or more over 10 years while the other approaches might "lessen the volatility in the update without dismantling the mechanism for linking physician fees to total spending for physicians' services or to growth in the economy."

Glenn Hackbarth, MedPac chairman, testified the SGR does little to affect volume of services and yearly updates would ensure payments are adequate to maintain services. He said volume growth is an issue Medicare must deal with at its root causes -- such as physician practice decisions and quality of care initiatives.

"Expanding payment for quality to the physician sector, where payment is still by the individual services provided, will be a challenge," he testified. "But it is a challenge that must be met to ensure high quality care for Medicare beneficiaries within a sustainable Medicare program."

Rep. Joe Barton, R-Texas, called the payment issue a risk to senior healthcare. Rep. John Dingell, D-Mich., the ranking minority member, called for changing the existing SGR formula for the short-term but also looking at a long-term permanent solution.


Senior power rules. The formidable group of reliable voters again has turned the political tide to their liking -- this time via their grassroots campaign for legal reimportation of drugs.

The drug reimportation task force set up by the Health and Human Services Department was ordered by the new Medicare law to study the issue -- the first crack in the government's opposition. Since then, even some Republican lawmakers have bowed to pressure -- at least one from his mamma -- and will support reimportation. This week, not even waiting for a report from his task force later this year, HHS Secretary Tommy Thompson acknowledged what he called the inevitable -- that it was a done deal in Congress and President Bush should let reimportation legislation go through.

Bills that would allow reimportation from Canada and the purchase of medications from European Union countries could work their way through Congress by the end of summer, making Democrats and senior suporters happy.

In the end, though, much like what happened in the Medicare prescription drug law, it could be the Bush administration that gets at least some election year credit if it can claim its concerns over safety and efficacy were answered and it presided over the establishment of a safe and reliable reimportation system.

Still opposing but finding fewer allies is the pharmaceutical industry. Drug makers say it is a safety issue, but there also is the fact it takes away from their more lucrative, no-price-controls U.S. market.


Sen. Bill Frist, R-Tenn., is a man of his word. The Senate Majority Leader promised he would continue to bring up medical malpractice legislation to cap non-economic damages time and again -- and he seems determined to do just that.

Emerging from the GOP Policy Lunch in Washington this week he gave reporters an update on the Republican agenda, which he said "very much is one of optimism."

Democrats who have successfully blocked malpractice bills several times in the recent past might say the Republican leadership is a bit too optimistic about gaining ground on a caps bill just for obstetritians and gynecologists.

Frist said the Democrats have developed an "unprecedented tool" that uses both filibusters on the floor and obstruction at the conference level.

"Medical liability came to the floor of the United States Senate first in July -- filibustered even on a motion to proceed -- back to the floor in February, once again filibustered on a motion to proceed -- back in April, once again filibustered on a motion to proceed," Frist noted.

Meanwhile, his House counterpart, Majority Leader Tom DeLay, R-Texas, told the American College of Emergency Physicians annual meeting the House next week is scheduled to take up flexible spending accounts, associated health plans and -- of course -- malpractice.



Copyright 2004 by United Press International.

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