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Payroll Tax Deal Freezes Medicare Doc Payment Rates Until 2013

By John Reichard, CQ HealthBeat Editor

February 16, 2012 -- Most House and Senate negotiators formally signed a conference agreement this past week that extends Medicare physician payment rates at current levels through the end of the year.

The "doc fix" piece of the legislation extending payroll tax relief and unemployment benefits is the latest in a long series of temporary payment patches to block scheduled deep payment cuts under the Sustainable Growth Rate (SGR) formula. Its $18 billion cost over 10 years is offset by various cuts under the health law (PL 111-148, PL 111-152) as well as to Medicare payments to hospitals, skilled nursing facilities, and clinical labs.

Democrats and some Republicans had hoped to eliminate the SGR as part of the current package by using savings from winding down the wars in Afghanistan and Iraq. Many physician groups said last week that they were deeply disappointed that lawmakers did not take that route.

But Democratic conference negotiators said after signing the agreement that there still is an opportunity to use war savings to do away with the SGR.

The House and Senate are expected to vote on the package this week before beginning a week-long recess.

The health-related offset provisions in the final agreement are as outlined Wednesday by a GOP aide. They save $21.2 billion over 10 years. In addition to the $18 billion cost of the doc payment patch, these offsets will also pay for various so-called Medicare extender programs.


Three of the offsets cut health law spending by $11.6 billion over 10 years. The reductions take $5 billion from a $15 billion preventive care fund, $2.5 billion by ending in 2014 a high Medicaid matching rate for the state of Louisiana, and $4.1 billion by reducing Medicaid payments to hospitals who treat a disproportionate share of low-income patients.

The other $9.6 billion in health-related savings consist of $6.9 billion in Medicare "bad debt" payment cuts to hospitals and skilled nursing facilities and $2.7 billion in reduced Medicare payments to clinical laboratories.

The bad debt payments compensate providers when patients don't pay their out-of-pocket charges. Depending on the type of patient involved, Medicare reimburses providers for some or all of these uncollected fees.

"This provision would phase down the bad debt reimbursements to 65 percent beginning in fiscal year 2013 for providers who are currently being reimbursed at 70 percent, while phasing in the reduction to 65 percent over three years for those who are reimbursed at 100 percent of their bad debt," said a Republican summary of the agreement. "President Obama recommends that bad debt payments be reduced to 25 percent," the summary added. Obama made that proposal in the context of a deficit reduction package.


The Medicare extenders cost relatively little. A provision to extend the Section 508 hospital program only through March 31, 2012 would add $100 million. The program adjusts payments to hospitals based on geographic differences in labor costs.

A program to preserve beneficiary access to certain hospital outpatient services by limiting out of pocket charges costs $100 million. A program that limits the payment impact to physicians of geographic adjustments for physician work adds $400 million to spending. A provision extending an exceptions process to the Medicare cap on payments for various outpatient therapy services adds $700 million.

Other extender programs receiving small sums of added funding cover physician pathology services and ambulance payments.

Also extended at a cost of $600 million was the "Qualifying Individual" program, under which Medicare pays states to cover Part B premiums for certain low-income seniors. And extending the "Transitional Medical Assistance" program to temporarily cover health care costs for people moving off of welfare costs $1.1 billion.

SGR Elimination

Rep. Sander M. Levin, D-Mich., the top Democrat on the Ways and Means Committee and a conference negotiator, said that the failure to use war savings in this latest negotiation to eliminate the SGR and the ever deeper payment cuts it generates "was a lost opportunity. It may not be fading away, but it was a lost opportunity," he said.

Another conference negotiator, Rep. Allyson Y. Schwartz, D-Penn., said she will continue to work toward elimination of the SGR, which the Congressional Budget Office estimates would require offsets of $300 billion over 10 years. "Some people think we could get it done by itself, and some people think the best we could get it done is in a bigger package," she said. Such a package could be considered "at the end of the year," she said.

War savings should still be available then to eliminate the SGR, she said. Schwartz said a number of Republicans have privately told her they would be willing to use war savings for that purpose. But Republican leaders would not allow it this time, she said.

Advocates Concerned

Chris Hansen, president of the American Cancer Society Cancer Action Network said the $5 billion cut to the prevention fund "is a deeply regrettable about-face that will undermine the nationwide effort to prevent death and suffering from cancer and other life-threatening diseases through expanded access to proven prevention and early detection tools."

"The prevention fund was created to save lives by improving access to lifesaving screening tests, tobacco cessation programs and better nutrition and fitness options at the state and community level. By steering funds away from prevention efforts focused on keeping people well, Congress is pulling back from its prior commitment to the common-sense goal of saving lives and money by preventing deadly and costly chronic disease."

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