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Playground Politics

From: The Hospitalist, September 2010

Congress continues to meddle with Medicare’s reimbursement formula

by Bryn Nelson, PhD

Baseball, kick the can, Russian roulette—pick your game. Chances are good that it has worked its way into a metaphor to illustrate the infuriating, perplexing, and altogether frustrating inability of Congress to step up to the plate and pass a long-term fix to the broken sustainable growth rate (SGR) formula used to determine Medicare reimbursement rates.

On June 24, legislators avoided catastrophe by temporarily rescinding a 21.3% rate cut that went into effect June 1. The after-the-fact patch meant that some Medicare claims had to be reprocessed to recoup the full value, creating an administrative mess. The accompanying 2.2% rate increase expires Nov. 30. The reimbursement cut could reach nearly 30% next year unless Congress intervenes again.

“Obviously, there’s a lot of frustration around the issue, especially on the membership side,” says Ron Greeno, MD, FACP, SFHM, a member of SHM’s Public Policy and Leadership committees, and chief medical officer for Brentwood, Tenn.-based Cogent Healthcare. For hospitalists in many small private practices, he says, a major percentage of income comes from Medicare. “It’s a tremendous headache,” he says of the uncertainty. “It’s very hard to plan for. You’re trying to budget and you don’t know what the policy is going to be literally from week to week.”

The Blame Game

Despite the widespread sentiment among doctors that a permanent reimbursement rate fix should have been included in the healthcare reform legislation, skittishness over the price tag led legislators to drop it from the package. Based on last fall’s estimates, the total cost of a reform bill that scrapped the SGR would have ballooned by roughly $250 billion over 10 years, which would have threatened the bill’s passage.

But Congress has since been unable to pass a permanent fix as standalone legislation amid mounting concern over the national debt, and the price of inaction continues to rise. On April 30, the Congressional Budget Office (CBO) estimated that the cost of jettisoning the SGR formula and freezing rates at current levels had grown to $276 billion over 10 years.

Any serious consideration of lasting alternatives has now been pushed back to the lame-duck session, after the midterm elections. The can has been kicked down the road so many times, Dr. Greeno and others say, that most Congressional members have boot marks all over them. “So now you have a bigger problem at a more crucial time, when money is tighter than ever in a poor economy,” Dr. Greeno says. “And I just think it’s been a failure of our politicians.”

Other healthcare industry leaders have been just as critical. “Delaying the problem is not a solution,” said AMA President Cecil B. Wilson, MD, in a prepared statement after Congress passed the latest six-month reprieve in June. “It doesn’t solve the Medicare mess Congress has created with a long series of short-term Medicare patches over the last decade—including four to avert the 2010 cut alone.”

AMA-sponsored print ads have reminded legislators that delaying a fix until 2013 will again increase its cost, to $396 billion over 10 years. And the association’s June press release asserted that “Congress is playing a dangerous game of Russian roulette with seniors’ healthcare.”

Perhaps a game of “chicken” would be more apt.

Republicans have dared Democrats to spend the billions for a more lasting solution—in the absence of any cuts elsewhere in the healthcare delivery system—and be labeled as fiscally irresponsible. In turn, Democrats have dared Republicans to let the rate cut take effect and be labeled heartless as Medicare beneficiaries lose access to their healthcare providers.

Both parties blinked, resorting to almost unanimous short-term fixes that have allowed legislators to save face while putting off politically risky votes until after the November elections. 

Lynne M. Allen, MN, ARNP, who works as a part-time hospitalist in hematology-oncology at 188-bed Kadlec Regional Medical Center in Richland, Wash., says she and other colleagues were initially hopeful that the Obama administration would make Congress work together to find a lasting solution. “There’s a sense of frustration because instead of that happening from our legislators, they’re playing a lot of games with the funding,” says Allen, a member of Team Hospitalist. “They’re not willing to step up to the plate, as they say, and make a decision that will allow us to go forward smoothly.”

The result, Allen says, has been a “roller-coaster ride” of uncertainty over reimbursements. Because Washington’s Tri-Cities region has a relatively high percentage of patients with private insurance, her hospital is somewhat cushioned from a precipitous drop in Medicare fees. But if CMS is ever forced to cut back on its rates, she fully expects private insurers to follow the same downward track.

SGR 101

To prevent the annual rise in Medicare beneficiary expenses from soaring past yearly growth in the nation’s GDP, the Social Security Act of 1997 introduced a new cost-containing formula called the sustainable growth rate, or SGR.

Using the GDP as one of its main benchmarks, the formula established a target for overall Medicare Part B payments. Whenever payments exceeded the target, the formula would recalculate a new SGR for the following year that cut reimbursement rates to doctors in order to recoup the lost money.

Healthcare delivery costs, however, have consistently outpaced the GDP. Every year since 2002, the SGR formula has called for rate cuts, and Congress has consistently waved them off through a series of temporary measures to prevent Medicare beneficiaries from losing access to care. Why is this a concern? Some providers already have opted out of Medicare because of its lower reimbursement rates for physician services. Legislators and healthcare experts worry that even lower payments would spur more doctors to turn away Medicare patients.

With the repeated patches, Medicare payments have remained relatively stagnant the past eight years. But because the cost-control formula hasn’t changed, the gap between targeted spending and actual payouts for physician services continues to widen, triggering ever-bigger rate cuts: 21.3% for 2010, and nearly 30% for 2011.—BN

Practical Concerns

Barbara Hartley, MD, a part-time hospitalist at 22-bed Benson Hospital in Benson, Ariz., says the town’s healthcare facility is somewhat protected from potential Medicare rate cuts through its official status as a Critical Access Hospital. Instead of being reimbursed through diagnosis-related group (DRG) codes, the rural hospital is repaid by Medicare for its total cost per day per patient.

The arrangement is a stable one at the moment, but not enough to dispel Dr. Hartley’s uneasy question: If the economy worsens, will Medicare be able to retain its commitment to rural hospitals? If not, the pain might be felt acutely in communities like Benson, where Dr. Hartley estimates that as much as 75% of the hospital’s in-patient business is through either Medicare or a Medicare Advantage plan.

Kirk Mathews, CEO of St. Louis-based Inpatient Management Inc. and a member of SHM’s Public Policy and Practice Management committees, says Medicare rate cuts also could significantly reduce the leverage of hospitalists during contract negotiations.

“Even if we’re employed by the hospital, but our professional fees that the hospital can recoup for our services are dramatically affected, it will affect how those future contracts go,” Mathews says. “We might be insulated temporarily by the strength of our current contract. But if the formula—however that works out—dramatically impacts the hospitalist reimbursement on the professional fee side, the hospital will feel that, and then hospitalists will eventually feel that as well.” In other words, it could strengthen the bargaining hand of the hospital at the expense of the hospitalist. “Therein lies the long-term threat,” he points out.

Independent Solution?

Some of the authority over physician payments might eventually be depoliticized via language in the reform legislation that empowers a new entity, the Independent Payment Advisory Board, to create policy on such critical monetary issues as reimbursement rates. Congress could still override the board’s policy decisions, but only if the Congressional alternative saves just as much money.

In the meantime, the money for a fix still has to come from somewhere, and no consensus has emerged. Advocates likewise refuse to coalesce around any single alternative. Some experts favor a new formula based on the Medicare economic index, which measures inflation in healthcare delivery costs. But the CBO estimates that per-beneficiary spending under such a formula would be 30% more by 2016 than under the current formula. Other proposals call for temporarily increasing rates, then reverting to annual GDP growth, plus a bit more to cover physician costs.

No matter how the crisis is resolved, experts say, doctors almost certainly will have to make do with less. “When healthcare reform is finally fully implemented, there are going to be less dollars to pay for more services. It’s inevitable,” Mathews says. “And whether it takes the form of SGR or some other form, I’m afraid physicians are going to have to get used to having less money in the pool of money that’s allocated to pay providers.”

It could be a whole new ballgame. TH

Bryn Nelson, PhD, is a freelance medical writer based in Seattle.


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