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Final CBO Score Says Docs Face 10 Percent Payment Cut in 2008

By John Reichard, CQ HealthBeat Editor

January 2, 2007 -- Last year's lobbying blitz by doctors to avoid a 5 percent cut in 2007 Medicare payments managed to keep payments flat, but physicians now face a 10 percent cut in Medicare payments in 2008, according to a final scoring document released Dec. 28 by the Congressional Budget Office (CBO).

The tax, trade, and health care bill signed into law (PL 109-432) Dec. 20 by President Bush "specifies that payment rates will revert to the prior-law level in 2008," the CBO analysis noted. "Assuming that occurs, CBO estimates that payment rates for physician's services will be reduced by about 10 percent in 2008."

The legislation also provides for a "Physician Assistance and Quality Initiative Fund" that can be used to offset the 2008 cut. The fund places $1.35 billion under the control of the Department of Health and Human Services secretary for that purpose, but CBO did not say by how many percentage points the 2008 cut would be reduced if all of the funds are spent that year.

"Those funds will remain available until spent, but [the legislation] instructs the Secretary to obligate those funds for physicians' services furnished during calendar year 2008 to the maximum extent feasible," CBO noted. The law also requires the Medicare actuary to certify that the HHS secretary's plan for spending the funds will not result in expenditures that exceed the balance of the fund. CBO estimates that 90 percent of the fund will be spent in 2008 and the remaining funds in 2009.

The law also provides that doctors who report data on certain measures of the quality of the care they provide from July through December 2007 will be paid an added 1.5 percent for those services in the form of a lump sum amount to be paid in 2008. CBO estimates that about $300 million will be paid out under this provision and that those payments will go to doctors who account for about two-thirds of Medicare spending for doctor care.

The American Medical Association declined comment on the CBO analysis but referred to a Dec. 9 statement by AMA Board Chairman Cecil Wilson issued when Congress approved the legislation. Wilson said that had a 5 percent cut occurred, "nearly half of physicians told the AMA the cut would force them to limit the number of new Medicare patients into their practice."

Even taking the fund into account, the projected 2008 cut is likely to be considerably larger than 5 percent. "The time is long overdue to devise a sound financing system for the Medicare program so we can avoid this annual struggle to preserve seniors' access to care," Wilson said.

CBO's final scoring estimates that Medicare spending will rise $500 million in 2007–2008 for a separate doctor payment provision that sets a floor on geographic adjustments for labor costs. A provision increasing Medicare payments to dialysis facilities 1.6 percent starting April 1 will increase Medicare spending $400 million in 2007–2011 and $1.1 billion over the 2007–2016 period.

A provision allowing exceptions to a $1,780 cap on annual spending for therapy services if medically necessary will increase Medicare spending $400 million in 2007, the CBO document estimated. The provision extends the exceptions process by one year.

Part B of Medicare, which deals with care outside of inpatient hospital departments, has covered the cost of administering a vaccine when the cost of the vaccine itself is covered by that part of the program. But the cost of administering vaccines covered by Part D of Medicare, the new drug benefit, has not been covered. An example of the latter is Merck's new vaccine to prevent shingles. The new law requires Part B to cover the cost of administering those vaccines in 2007 and requires Part D plans themselves to pick up those costs starting in 2008.The 10-year cost of the provision is estimated to be $800 million.

The new legislation also allows HHS to contract with private parties called "recovery audit contractors" to spot incorrect Medicare payments to providers. CBO estimates that payments to these contractors and associated management costs will total $4.4 billion over the period 2007–2016. Gross savings from these audits would be four times these amounts and could exceed $17 billion over 10 years, CBO said. But the office said it is not permitted to formally score these amounts as savings for the purpose of totaling up the overall cost of the legislation.

CBO said new limits on the use of a $10 billion stabilization fund to attract regional managed care plans to Medicare will reduce spending by $6.5 billion over 10 years.

Tax breaks for new provisions to encourage health savings accounts will reduce federal revenues by $1 billion over 10 years. The provisions allow taxpayers starting an HSA partway through a year to contribute up to the full annual limit. They also permit employees to open an HSA by making a one-time transfer from a flexible spending account. And they repeal the limit on contributions to HSAs equal to the annual deductible under a high-deductible insurance policy.

The analysis also estimates that extending for six months a requirement that states provide Medicaid coverage to certain people coming off welfare will add $348 million to federal Medicaid spending in 2007–2011, while new limits on the use by states of provider taxes to obtain more federal Medicaid funds will reduce federal Medicaid spending by $260 million in 2008–2011.

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