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MedPAC Wades in with Bold Plan to Clean Up Physician Payment Mess

By John Reichard , CQ HealthBeat Editor

September 16, 2011 -- Overhauling Medicare's vexing physician payment formula may be an insurmountable political challenge because of the cost and the drive to reduce the deficit.

But the Medicare Payment Advisory Commission (MedPAC) has a plan to do it. It rocked the health policy world Sept. 15 by floating a bold approach for redoing the complicated formula, which each year mandates larger and larger reductions in doctor payments. The cost of fixing the problem also compounds each year.

Instead of lawmakers turning to increasingly unaffordable patches to prevent the cuts in the payment rates for physicians who treat Medicare patients, MedPAC is proposing an approach that would cost much less than the $300 billion the Congressional Budget Office estimates it would require to replace the formula. And in another big surprise, the independent advisory panel came up with a package of proposed cuts to Medicare to get the job done.

It's a long shot, to be sure, that such a plan would ever become law. But it's a serious proposal that fulfills last spring's congressional request that MedPAC develop a strategy to point the way out of the current physician payment mess.

MedPAC Chairman Glenn Hackbarth, among the most respected Medicare analysts, says the stakes are huge. The payment cuts triggered by the formula, he says, could prompt doctors to abandon the program. If lawmakers fail to act, they could face growing complaints from seniors that they can't find a doctor, just as millions of baby boomers are enrolling in Medicare.

What also made the MedPAC proposal momentous was the role the usually cautious Hackbarth took on as truth teller. In effect, he suggested that Congress can use Medicare cuts to fund only two out of three legislative goals: expanding insurance coverage under the health law (PL 111-148, PL 111-152); reducing the deficit; and junking the payment formula. Congress could raise taxes or cut spending elsewhere to cover the costs of getting rid of the formula. But as the chief congressional adviser on Medicare policy, Hackbarth wasn't going there.

Big Money

Under the MedPAC idea, Congress could replace the formula for $200 billion over a decade. The $100 billion difference from CBO's estimate would be achieved by cutting payments to specialists, instead of following CBO's assumption that reimbursement rates would remain the same for all physicians. Specialists' payments would be trimmed by 6 percent a year for three years; then they would be frozen. Reimbursements to primary care doctors would remain flat. The commission will decide at its October meeting whether formally to recommend such a plan to Congress.

Targeting specialists for payment cuts is attractive because they are highly paid compared to primary care doctors—and policy wonks have sought to narrow that gap. It may be even more important now because seniors looking for a new doctor increasingly have more trouble getting in to see a primary care physician than a specialist.

The plan would be paid for with $235 billion in payment cuts across health care sectors. MedPAC has identified $75 billion in cuts from the pharmaceutical industry; $49 billion from skilled nursing facilities, home health care and other "post-acute" care; $33 billion from beneficiaries; $26 billion from hospitals; $21 billion from labs; $14 billion from wheelchairs, hospital beds and other medical equipment; and $12 billion from Medicare's private health plans.

Few Easy Allies

There are many reasons the plan could stumble. The full commission has yet to approve it. Many, but not all the commissioners expressed support Sept. 15. When the specific policy changes needed to make the cuts are revealed early next week, some could prove too controversial. Hospitals, home health agencies, skilled nursing facilities and other providers are facing many other challenges and will resist absorbing cut to solve the payment woes of doctors.

"The proposal has the effect of pitting health care providers against each other," says Julius Hobson, a lobbyist with the law firm Polsinelli Shughart. Up to now there has been a unified effort by the physician community to replace the formula, known as the sustainable growth rate. "This is the one thing I have always feared might happen one day as policy options get considered for replacing the SGR."

AMA lobbyist Sharon McIlrath warned MedPAC members that the approach could make it hard for patients to see specialists. Many specialists are approaching retirement, she said. More than half of psychiatrists are over age 55 and the proportion is even higher for urologists and pathologists. New cuts could drive specialists to retire sooner.

Perhaps the biggest threat to the plan is that the White House and the Joint Deficit Reduction Committee may want to snap up the cuts MedPAC identified to meet their $1.2 trillion target. But Hackbarth says while MedPAC is prepared to endorse the cuts as a way to replace the doctor payment formula, that doesn't mean it would back such cuts for other purposes. And if Congress does use them to reduce the deficit, boomers won't be shy about voicing displeasure with limited access to doctors in a few years.

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