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CMS Says Medicare Part B Premiums Likely Higher Than Expected

March 31, 2005—Physician care premiums for seniors could rise by $1.50 per month more than expected, the Centers for Medicare and Medicaid Services (CMS) announced Thursday. Medicare beneficiaries had already been expecting a significant 12 percent jump in their Medicare Part B care premiums, from $78.20 to $87.70. The previous year, monthly premiums rose 17 percent. "This is an area of major concern for us," said CMS administrator Mark B. McClellan.

CMS officials said that greater-than-anticipated spending for physician services would drive the number skyward more than they predicted just last week, when the Medicare trustees' report was released. The spending is largely related to an increase in the number and frequency of services such as MRI scans and lab tests that were performed, as well as an increase in the complexity of the tests.

"Continued rapid spending growth strains both beneficiaries' incomes and the federal budget," said Center for Medicare Management director Herb Kuhn in a letter to the panel that advises Congress on Medicare spending, the Medicare Payment Advisory Commission (MedPAC). McClellan emphasized that statement later in a phone call with reporters.

The higher costs for physician services also may complicate efforts to raise payment rates for doctors, acknowledged McClellan. "No question that higher spending levels make it more expensive to implement a legislative change that would increase the physician payment rate," he said.

The current Medicare formula is expected to result in cuts of about five percent per year over the next several years to doctors. Doctors have been pushing Congress for higher payments. Federal officials had been expecting that spending for physician services would be as high as 12 percent more in 2004 than 2003, but it turns out that the spending was actually 15 percent higher.

Much of the spending increase was tied to the "volume and intensity" of the services, which were at least twice as high as typically seen. American Medical Association Board Chair Dr. J. James Rohack said Congress must act now to replace "the flawed" Medicare physician payment formula which he said "penalizes physicians for providing necessary care to Medicare patients."

Conditions that once required hospitalization are now routinely treated in physicians' offices, which saves money for both patients and the government, Rohack said in a statement. "Medicare should recognize and reward these advances rather than penalize physicians for these important improvements in patient care," Rohack said.

Rep. John D. Dingell of Michigan, the ranking Democrat on the House Energy and Commerce Committee, said the CMS letter "shows an 8.5 percent increase in payments to HMOs while the physicians get a 4.3 percent decrease in payments—evidence that our priorities are upside down."

Both physicians and beneficiaries will be hurt, Dingell said. "The physicians lose money, while beneficiaries pay more. And the doctor-patient relationship will go the way of the dodo bird as HMOs, with the help of their Republican friends, grab more and more of Medicare."

Senate Finance Committee Chairman Charles E. Grassley, R-Iowa, said lawmakers must overhaul the way Medicare pays physicians. "We need to find a physician payment system that works. Until then, it'll be increasingly difficult to find the resources needed for a long-term fix, if spending related to the physician fee schedule continues to increase," Grassley said in a statement.

In a House Ways and Means Health Subcommittee hearing two weeks ago, MedPAC Executive Commissioner Mark E. Miller said from 1999 to 2003, Medicare spending for imaging services paid to doctors grew over 60 percent, from $5.7 billion to $9.3 billion. Beneficiaries' spending on the services has increased as well, both directly through co-payments and indirectly through increased premiums for Medicare Part B.

Miller said diagnostic imaging services paid under the Medicare physician fee schedule grew faster than any other type of outpatient service between 1999 and 2003. While the sum of all physician services grew 22 percent in those years, imaging services grew 45 percent.

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