Hope for Averting Double Whammy on Medicare Fees

Chances appear good that Congress will once again veto a threatened cut in Medicare physician payments for calendar 2007--cuts that would cost psychiatrists an average of 7% in their billings. Key chairpersons of the requisite committees acknowledged before the August congressional recess that something had to be done to avert the 5.1% fee reduction announced by the Centers for Medicare and Medicaid Services (CMS) in late July. That 5.1% reduction would be applied to all physician payments including the "big-ticket" current procedural technology codes for psychiatrists, such as 90801 for an initial psychiatric evaluation and 99203-05 for outpatient office visits.

That announcement, included in a proposed rule that will be finalized in October, came on the heels of an earlier proposed rule in late June that would result in an additional 2% average cut for psychiatrists in 2007. That total 7% reduction in payment is in the middle range of what other specialties are forecast to face in 2007, from a 3% increase for infectious disease physicians to a 16% loss for radiologists.

Becky Yowell, deputy director of the Office of Healthcare Systems and Financing of the American Psychiatric Association (APA), noted that the conversion factor drop was of very significant concern. "Hopefully, Congress will act before the end of year to stave it off," she added.

Two of the 3 key lawmakers on Medicare payment issues went on record in late July on the need to fix the Medicare fee formula before Congress adjourns for the year, probably in early October. But neither Rep Joe Barton (R, Tex), chairman of the House Committee on Energy and Commerce, nor Sen Charles Grassley (R, Iowa), chairman of the Senate Finance Committee, have advanced a proposal to do that. The third legislator with a major voice on the issue is Rep Bill Thomas (R, Calif), chairman of the House Ways and Means Committee. "It's got to happen, but how it will happen we haven't decided," Grassley told Congressional Quarterly just before Congress recessed in August.

Only one bill on the subject has been introduced. Representative Michael C. Burgess, MD (R, Tex) has introduced the Medicare Physician Payment Reform Bill and Quality Improvement Act of 2006 (HR 5866), which would establish the conversion factor update formula as the Medicare Economic Index (MEI) minus 1%. "This eliminates the negative feedback loop that constantly creates a deficit in health care funding and introduces a more market-sensitive system," explained Burgess.

Since 2002, Congress has ordered a nominal increase in the fee update when the formula that Medicare used to determine the update ended up with a negative result. That formula takes the MEI, a measure of medical cost inflation, and modifies it based on whether physician billing to Medicare in that year has exceeded or come in under a specified target. Since 2002, that spending has overwhelmed the target, and by increasingly larger amounts, leading to negative updates of the conversion factor, even when the MEI is positive.

Almost everyone in Washington agrees that the conversion update formula needs to be changed. "We need to get out of the vicious circle of rapid growth in utilization and spending and falling real payment rates," said CMS Administrator Mark B. McClellan, MD, PhD.

However, if Congress decides to mandate a positive update or simply to eliminate the update of minus 5.5%, that would mean a theoretical increase in Medicare spending on physician fees in 2007 over and above what the formula dictated. As a result, Congress would have to cut spending an equal amount elsewhere. Burgess noted that there are some possible ways to reduce current Medicare spending and use those savings to pay for the change to the conversion factor update. "Redirecting the stabilization fund from the Medicare Modernization Act provides some funds," he stated. "Also, Medicare currently pays for indirect costs of medical education twice, directly and by inflating payments to Medicare Advantage plans."