Medicare Physician Payment Cuts and the Impact on Patients

  • Physicians are facing a 21. 2 percent cut in Medicare payments. The cut took effect April 1, 2010. The Centers for Medicare and Medicaid Services is temporarily holding claims in hopes Congress will act to stop the cut when lawmakers reconvene April 12.
  • According to the Medicare Payment Advisory Commission (MedPAC), one in four seniors seeking a new primary care physician is already having difficulty in finding one to take care of them.
  • In a recent informal survey by the American Medical Association (AMA), 68% of physicians indicated that they will either stop taking new Medicare patients or will stop seeing any Medicare patients if the 21% cut takes effect. In addition to reducing the number of Medicare patients they see, physicians indicated they would take other steps to control costs if the cut takes place. The top three actions are: 1) reduce staff (58%); 2) stop providing certain services (56%), and; 3) defer purchase of new medical equipment (54%).
  • A majority of the more than 14,000 surgeons and anesthesiologists who responded to a recent survey conducted by the American College of Surgeons and 22 other specialty societies indicated that they will be forced to make significant changes in their practices if the 21% Medicare cut goes into effect, and that timely access to surgical care will be jeopardized if Medicare payments continue to decline.
  • The Military Officers Association of America (MOAA) states that the cuts in Medicare physician rates would be devastating for access to care for military families, many of whom already have difficulty finding TRICARE providers. MOAA’s legislative alert states: “Congress has to find a way to end these monthly crises under which tens of millions of Medicare and TRICARE beneficiaries are held hostage to the prospect of devastating payment cuts that will cause their doctors to stop seeing them.” There are nearly 215,000 persons covered by TRICARE in Colorado.
  • In the long-run, all patients — especially baby boomers — may find it more difficult to find a physician. The congressionally-created Council on Graduate Medical Education is already predicting a shortage of 85,000 physicians by 2020, and multi-year cuts in Medicare are nearly certain to exacerbate this shortage by making medicine a less attractive career and encouraging retirements among the 35 percent of physicians who are 55 or older.
  • Access will only become more difficult as millions of people who are currently uninsured receive coverage as the result of recently signed health care reform.
  • Medicare physician cuts also pull down payment rates from other sources. For example, TRICARE, which provides health insurance for military families and retirees, ties its physician payment rates to Medicare, as do some state Medicaid programs. Thus, Medicare cuts trigger TRICARE and Medicaid cuts as well.

How we got here: The SGR

  • Medicare physician payments are based largely on the Sustainable Growth Rate, or SGR.
  • The SGR is based on the Gross Domestic Product, not on actual health care practice costs. It effectively caps total Medicare expenditures on physician services. If utilization of physician services increases above the target growth rate, the reimbursement per service performed drops.
  • Problems were identified early on with the SGR. The SGR targets for 1998 and 1999 were based on estimates of Medicare fee-for-service enrollment and GDP growth that were way too low.
  • Medicare payments today are just one percent higher than they were in 2001. Since then, physician practice costs increased 22 percent, as measured by the Medicare Economic Index. Medicare payments currently cover only 50 percent of physicians’ direct practice costs, and the gap between payment updates and the cost of caring for patients will grow further if Congress continues the practice of enacting temporary patches that replace pending cuts with payment updates that do not reflect the increase in practice costs.
  • From a budgetary perspective, the most responsible action is to repeal the SGR today. In 2005, the scheduled payment cut was 3.3% and the Congressional Budget Office (CBO) estimated the cost of a 10-year physician payment freeze at $48.6 billion. Today, physicians are facing a 21.3% cut and the CBO recently estimated the cost of a freeze to be $286 billion over 10 years.
  • If Congress continues to enact short-term patches funded by budget gimmicks, in 2014, physicians will be facing a cut of 32% the following year, and the cost to freeze Medicare payments to physicians will have risen to $417 billion over 10 years. On top of this, Congress would have spent $96 billion to stop Medicare physician payment cuts from 2010 through 2014, putting the full cost of permanent SGR reform at more than $500 billion.
  • The 2009 Medicare Trustees report projected cuts in physician payment rates due to a formula called the “Sustainable Growth Rate” or SGR approaching 40% by 2015. A regulatory change made by the Obama Administration should improve the outlook in the 2010 Trustees report, but physicians still face cuts well above 20%.
  • Physician practice costs will continue to increase during this time period.

Solution: Repeal and replace the SGR Formula

  • Congress should scrap the SGR formula and instead adopt the same approach for physician payment updates that is used for hospitals, nursing homes, and other Medicare providers. Under this approach, payments would accurately reflect practice cost increases.

Bipartisan Support for Permanent SGR Reform

Even as they have continued to enact temporary patches, leading Senators from both parties have been calling for permanent reform:

Our physicians are facing year after year of cuts and beneficiaries are facing a loss of access to the physicians they know and trust. I believe the correct course is to deliberately and methodically build up toward a new physician payment system that accurately accounts for the cost in providing care to beneficiaries while encouraging and rewarding high quality and improvement.
- Sen. Tom Coburn, November 3, 2005

Mr. President, as we approach the end of 2007, one cannot help but look ahead and see that there are many challenges that await us in the second session of the 110th Congress, specially in addressing issues relating to health care. In 2008, we will need to take a serious look at many issues in the Medicare Program. Among them will be continuing to work on developing a solution for Medicare's flawed physician reimbursement system. As usual, I look forward to working with my partner on the Senate Finance Committee, chairman, Senator Max Baucus, in our usual bipartisan way to address this and many other issues.
- Sen. Charles Grassley, December 18, 2007

“I am committed to finding a permanent solution to the flawed payment formula that caused this cut.  And in the meantime, this bill makes sure that our physicians in Medicare and TRICARE will not face steep, unfair cuts in payments.  This bill would help ensure that they can continue to care for our seniors and military families.”
Sen. Max Baucus, December 18, 2009

My own personal preference is that we fix this permanently. It is going to cost a lot of money, but that is the way it should be done. We should not be fixing this every year. And, in fact, it is becoming a geometric progression which is spiraling downward, with every year becoming a much more difficult effort.
– Sen. Judd Gregg, June 12, 2008

Everyone agrees we need to fix the physician payment system. There is no disagreement on that.
--Sen. Mitch McConnell, June 26, 2008

“The doctors fix was done because the doctors felt that was the best way to move forward.  We all believe—certainly we Democrats believe--that the doctors fix should be permanent.  We certainly need to do that.  In the bill that we had, we had a one year doc fix.  They didn’t want that.  They’re entitled to more than that, and we agree.  That’s why they support this legislation.  There are a number of issues dealing with the doctors fix, and we are going to work on that as soon as we get back after the holiday.”
-- Sen. Harry Reid, December 19, 2009

Medicare Physician Payments: Q&A

Q: How much will Medicare physician payments be cut?
A: The current cut is 21.2 percent. The 2009 Medicare Trustees report projected cuts in physician payment rates totaling about 40 percent over the coming decade.

Q: When will the cuts begin?
A: A 21% cut that was slated to take affect on January 1, 2010 was delayed with temporary short-term extensions until April 1, 2010, but it has now taken effect, though the Centers for Medicare and Medicaid Services in holding claims until April 15, 2010 in hopes Congress will avert the cut. The Senate has scheduled a vote on another short-term extension for April 12th.

Q: Who will be hurt by these cuts?
A: Patients — access to care for elderly and disabled patients, as well as military families and retirees will be in jeopardy. Physicians, already faced with escalating practice costs and payments that haven’t kept up with these costs, cannot absorb Medicare cuts and will be forced to limit the number of new Medicare and TRICARE patients they serve or potentially stop treating them entirely. These cuts could hasten retirements among the 35 percent of physicians who are 55 or older, and exacerbate physician shortages already predicted to occur when the baby boomers begin to enter Medicare in a few years.

Q: Will non-Medicare patients be affected by the cuts?
A: Yes. All patients will be affected if the cuts force physicians out of patient care. Many health programs link their payment system directly to Medicare rates, affecting millions of non-Medicare patients.

Q: Why do the Medicare physician cuts continue?
A: The Medicare physician payment formula, the SGR, is fatally flawed because it penalizes physicians with lower payments when the growth in utilization of medical care exceeds an arbitrary target limited to growth in the gross domestic product. Limiting the SGR to the GDP is flawed because medical care needs generally grow more rapidly than GDP, due to patient health needs, new technology, and public policies that encourage patients to seek certain medical services—none of which physicians control. The recent recession and negative GDP growth has highlighted this disparity.

Q: What’s the solution?
A: Physicians must receive Medicare payments that keep pace with the cost of treating seniors. The AMA advocates for elimination of the unfair SGR formula and its replacement with an annual system that reflects increases in physicians’ medical practice costs.

Q: If physicians are experiencing payment cuts, then why does Medicare spending for physicians’ services keep going up?
A: An August 2006 Health Affairs article by Kenneth Thorpe and David Howard found that “[v]irtually all of the growth in spending from 1987 to 2002 can be traced to the twenty-percentage-point increase in the share of Medicare patients receiving medical treatment for five or more conditions during the year.” Further, government statistics show that medical advances added about two years to life expectancy
A: No. Part B premium increases over the last few years have been due more to increased spending on other health benefits, including Medicare Advantage plans and hospital outpatient services, than physician services. In addition, according to CMS, many beneficiaries are protected from premium increases because one in four is eligible for Medicare premium subsidies.


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