October 2002
Volume 66 |
Number 10
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WASHINGTON REPORT
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Congress Confronts Full Agenda
on Return; Expected to Deal With Medicare Update Issue
Michael Scott, J.D.,
Director Governmental and Legal Affairs
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Senators and Representatives returned to Washington from
the August congressional recess to begin the final legislative
push for the 107th Congress. With the advent of the new
fiscal year only three weeks away, the two bodies had not
passed and sent to the President even one of the 13 necessary
appropriations bills. In addition, several bills of major
importance – among them homeland security, energy policy
and pension plan reform – still require congressional
action. With Election Day looming in early November, talk
of a lame-duck session abounds.
For physicians, the most significant unresolved issue remains
possible Medicare prescription drug legislation, not because
physicians are directly involved in the outcome of the current
policy debate, but because this proposed legislation has
been widely viewed as the likely vehicle for Medicare provider
payment reform. As previously reported in this column, the
House passed a modest Medicare prescription drug bill in
late June; that bill contained at least interim payment
relief for physicians and other providers. The Senate, however,
was unable to pass its own prescription drug bill prior
to the recess and did not even consider provider payment
issues.
One of the problems in the Senate stemmed from that body's
failure to pass a budget resolution for FY 2003, with the
practical budgetary effect that it was limited to the amount
for Medicare improvements ($300 billion) contained in its
FY 2002 resolution. This meant that 60 votes were required
to overcome a budgetary point of order on any more generous
Medicare bill, a majority that proved impossible to achieve
in a closely divided Senate where Republicans and Democrats
were split on whether the drug benefit should be provided
as an integral part of Medicare or through federal subsidies
to the drug industry.
On October 1, the budgetary limitation based on FY 2002
expired under Senate rules, meaning that only a normal majority
is required to pass the bill. This fact has inspired renewed
effort in the Senate to develop a bill that can attract
the diminished number of necessary votes, thus setting up
the basis for a conference with the House on its bill. It
is by no means clear that a conference would develop a compromise
bill that could pass both Houses and be acceptable to the
President, but congressional leaders from both parties are
reluctant to face voters in November while bearing the stigma
of failure on the drug bill.
On this somewhat uncertain drug-benefit hook hangs the
possibility of congressional action to ameliorate the now
anticipated Medicare physician payment cuts, if current
law remains in effect, totaling about 12 percent over the
years 2003-05. (Because the Centers for Medicare & Medicaid
Services [CMS] has determined to adopt a somewhat better
adjustment for assumed increased physician productivity,
the cuts for the next three years have now dropped from
about 15 percent, as previously estimated by CMS, to "only"
12 percent.)
House Ways and Means Committee Chair William M. Thomas
(R-CA) has said that he does not intend to move an independent
provider payment bill if the Senate does not adopt provider
payment provisions as part of a drug benefit bill. If he
is good to his word, organized medicine confronts an uncertain
prospect for gaining amelioration of the currently projected
cuts.
Major Sources of MFS Update Problem
A number of ASA members have legitimately inquired as to
"how we got into this mess." The answer lies mainly
1) in the structure of the Medicare Fee Schedule (MFS) update
formula, 2) in uncorrected estimation errors made by CMS
with respect to the 1998 and 1999 updates and 3) in two
CMS practices that many people believe are not authorized
by the Medicare statute.
First, as to the update formula adopted in 1997 (the sustainable
growth rate, or SGR formula), a target rate of spending
growth is determined each year by changes in the Medicare
Economic Index (essentially, the cost of delivering medical
services), the enrollment in Medicare's fee-for-service
program, the inflation-adjusted per capita gross domestic
product (GDP) and spending due to laws and regulations.
The target growth rate is applied to the prior year's allowed
spending to determine allowed spending for the following
year. The SGR formula is cumulative from April 1, 1997,
meaning that the update is based upon the cumulative difference
between allowed and actual spending for physicians' services.
Annual updates under the formula can neither exceed more
than +3 percent when spending is below the target nor 7
percent when spending exceeds the target. Inclusion of changes
in the per capita GDP in the update formula is designed
to limit Medicare spending on physician services when growth
in the economy is slow: the GDP, of course, has nothing
to do with the cost of delivering physician services.
The cumulative nature of the SGR formula contributes much
to the hole in which physicians now find themselves. With
respect to 1998 and 1999, CMS seriously underestimated per
capita GDP growth; and for 1999, CMS radically overestimated
the decline in fee-for-service enrollment that it anticipated
would result from beneficiaries shifting to Medicare + Choice.
These errors are projected to negatively affect physician
payments by some $46 billion over 10 years, built as they
are into the cumulative difference between allowed and actual
spending.
CMS takes the position that it has no legal authority under
the Medicare statute to correct the mistakes, meaning that
they sit like a giant albatross on physicians' collective
shoulders. This situation is exacerbated by CMS' discovery
in 2001 that it had failed in 1998 to include many new codes
in its determination of actual spending – an error
resulting in overpayment of physicians that needed to be
"paid back" under the formula.
Two other CMS practices also contribute to the current
problem: inclusion of the cost of many outpatient drugs
in the calculation of spending for physicians' services
and failure to take account of new Medicare coverage decisions
in SGR target spending projections. Utilization of outpatient
drugs is rising at a rate significantly higher than that
for physician services, and inclusion of costs for these
drugs has the effect of artificially inflating actual expenditures
for physician services with the concomitant effect of reducing
the annual update. The American Medical Association (AMA)
estimates that the 10-year adverse effect on physician fee
updates approximates $16 billion, or about 0.5 percent per
year. Serious legal questions exist as to whether this CMS
practice is permitted by the Medicare statute, but since
the statute also contains a jurisdictional bar on attacking
CMS calculations under the MFS, no court test of the practice
has been mounted.
The other questionable CMS practice is failure to include
in the required SGR calculation of changes in laws and regulations
its coverage decisions for new or added procedures –
thus essentially requiring physicians to pay the cost of
these added benefits out of the updates they would otherwise
receive. No estimate of the cumulative cost to physicians
of these coverage changes is available, but it is no doubt
substantial in light of the numerous new coverage decisions
that have been announced by CMS since introduction of the
SGR update formula.
House Passes Interim Fix
As previously reported, under the leadership of Ways and
Means Chairman Thomas last June, the House passed a drug
benefit bill (H.R. 4954) containing provider payment improvements.
This was accomplished within severe budgetary restraints
by authorizing a 2-percent statutory update for physicians
in 2003 and then, with respect to 2004 and 2005, "rebasing"
the SGR formula to eliminate the effect of the earlier CMS
projection errors to permit estimated positive updates in
each of those years of more than 2 percent. Effective in
2006, however, the rebasing would be eliminated, meaning
that if Congress does not act further (as most observers
anticipate it would do to avoid a Medicare access crisis),
physicians could expect a negative adjustment of -15 percent
or more. ASA reluctantly endorsed the bill (as did AMA and
many other specialties), giving recognition to the budget
limitations confronted by the House.
To date, little attention has been given to addressing
the physician update problem in the Senate, but what discussion
has occurred suggests a disinclination on the part of many
Senators to enact a temporary rebasing of the update formula.
They would instead favor a permanent rebasing, which means
that depending upon what positive updates might be given
in 2003-05 or longer, significant negative updates would
have to be imposed in the "out" years. (Congress
tends, for budget purposes, to develop data for a 10-year
span.) There is no current indication how this approach,
if passed in the Senate as part of a prescription drug bill
or otherwise, would be resolved with the House's temporary
rebasing "fix."
Some medical specialties appear to be favoring the Senate
approach on the grounds that the House approach simply puts
off the problem until future years when budgetary limitations
may be even more serious. ASA leadership at this point appears
strongly inclined to favor the House approach as the better
solution – finding itself totally unwilling to support
a permanent rebasing in order to fix a problem caused by
CMS misestimations that would require serious negative updates
for ASA members in the out years.
Rural States Claim Discrimination
Cutting across this serious budgetary problem is the fact
that physicians and their advocates in several predominantly
rural states have turned up the volume this past year on
their long-standing complaint that geographic payment differentials
under the MFS unfairly discriminate against them and make
attracting new providers to rural areas more difficult.
This argument appears to resonate well in the Senate Finance
Committee, where the leadership and membership come mainly
from rural states.
The MFS establishes relative values for all physician services
based upon the value of three components: physician work,
practice expense and professional liability cost. The current
Medicare payment system calls for geographic adjustments
to reflect differences in practice costs and professional
liability insurance costs, but only one-quarter of cost-of-living
comparative amounts are reflected in physician work values.
At present, physician work geographic variations range from
about 3 percent below to 2 percent above the national average.
Overall, including geographic adjusters for all three components,
the variation is from about 10 percent below to 15-20 percent
above the national average.
The physician payment portion of the House prescription
drug bill (H.R. 4954) purported to respond to this claimed
discrimination by limiting to 1.5 percent the amount by
which physician work values could be below the national
average for 2004, but not requiring that work values in
states above the national average be lowered commensurately.
Physicians in predominantly rural states have made it clear
to their Senators that the House bill does not go far enough,
with some arguing that there should be no geographic discrimination
at all among Medicare payment areas no matter what the variations
in practice expenses and professional liability costs may
be.
The outcome of this effort in the Senate is uncertain,
but given the fact that there are more Senators representing
states below the nation payment average than above, action
stronger than that taken by the House can be anticipated.
Some Senate staffers have estimated a cost of $3 billion
to $4 billion over 10 years to bring those payment areas
below the national average up to the average, and there
is serious concern that these funds will be found by diminishing
the size of the MFS update that might otherwise have been
voted.
Because of the importance and complexity of these issues
– among all others with which Congress must contend
before the 107th Congress adjourns sine die – few medical
association lobbyists are contemplating any form of extended
vacation before the holidays, including your faithful correspondent.
Erratum
In the July 2002 "Subspecialty News" section,
Susan L. Polk, M.D., Associate Professor of Clinical Anesthesia
and Critical Care, University of Chicago, was inadvertently
left out of a list of Society for Education in Anesthesia-Duke
Prize recipients recognized for their lifetime educational
contributions. Dr. Polk received the award in 1999. We apologize
to Dr. Polk and her institution for the oversight.
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