Docs, hospitals may face off for share of healthcare funds

Grappling with Medicare’s bleak financial future and a large scheduled cut for doctors next year, Congress is likely to dip into payments slated for other healthcare providers to stave off the politically unpopular reduction for physicians. In the wake of the new trustees report that says Medicare is headed for bankruptcy in 15 years, lawmakers are faced with daunting policy decisions on whether to scale back government payments to healthcare providers. Healthcare experts say that with the deficit and Medicare’s future, lawmakers will be forced to pick winners and losers, triggering what could be intense battles among healthcare groups.

Grappling with Medicare’s bleak financial future and a large scheduled cut for doctors next year, Congress is likely to dip into payments slated for other healthcare providers to stave off the politically unpopular reduction for physicians.

In the wake of the new trustees report that says Medicare is headed for bankruptcy in 15 years, lawmakers are faced with daunting policy decisions on whether to scale back government payments to healthcare providers. Healthcare experts say that with the deficit and Medicare’s future, lawmakers will be forced to pick winners and losers, triggering what could be intense battles among healthcare groups.

If Congress does not act, physicians will receive a 5.2 percent cut in 2006 and a series of cuts through 2013 that will total 31 percent. Because doctor payments are linked to overall economic growth, Congress has stepped in for several years to ensure that physicians receive small increases in place of reductions that would have been mandated by the formula that determines how much doctors are paid. Last year, doctors got a 1.5 percent boost after Congress intervened, halting a 4.5 percent cut.

Lobbyists representing physicians, senior citizens and others agree that Congress will not let the 2006 cut come to pass. Sen. Chuck Grassley (R-Iowa), chairman of the Finance Committee, recently told the American Medical Association (AMA) that he supports designing a new formula — a major issue for doctors — but an aide maintained that “it’s too early to tell” whether a temporary fix can be enacted.

“We don’t know how much, if any, money we might have to address physician payments in the FY 2006 budget,” the staffer said in an e-mail. Nevertheless, Grassley said at a March 15 AMA meeting, “We can’t just keep kicking the can down the road.”

Hospitals are likely to end up footing part of the bill, predicted AARP’s policy and strategy director, John Rother. With a limited amount of money available for new spending, the Senate Finance Committee and the House Ways and Means and Energy and Commerce committees will look to reduce the pay raise for hospital services in order to halt the cut to doctors, he suggested.

Hospitals have been given full payment increases only three times from 1988 to 2004. For 2005, however, most hospitals are receiving the full 3.3 percent payment boost, which is based on a so-called market basket of expenses. Although the underlying formula called for an increase 0.4 percent below the scheduled amount for inpatient services, hospitals that agreed to share information on quality of care were given the full amount as part of the Medicare Modernization Act; nearly all hospitals participated.

“All we’re asking for is an inflationary adjustment,” said Rick Pollack, executive vice president of the American Hospital Association.

Unlike the physicians, however, hospitals still would get more money if Congress does nothing. Consequently, Congress will be motivated to scrutinize payments to hospitals and other healthcare providers to find savings, said Dan Boston, a lobbyist with Health Policy Source who represents hospitals. “I think every single provider is going to be looked at,” said Boston.

The Medicare Payment Advisory Commission (MedPAC), which reports to Congress, has recommended a 2.7 percent increase in physician payments. MedPAC also has concluded that hospitals should get a 2.8 percent increase, 0.4 percent lower than under the market-basket formula. In a report issued to Congress in March, the panel states that although the margins between hospital costs and payments for Medicare services have narrowed, the growth in costs during 2003 “was influenced by the lack of financial pressure to constrain costs.”

The AMA continues to base its case for a permanent fix on its contention that declining payments would, at the least, discourage doctors from accepting new Medicare patients.

“The problem is the formula,” said Dr. Edward Hill, president-elect of the organization. The physician community is confident that a permanent change to the reimbursement formula is in the works. “We’ve been assured by many members of Congress,” Hill said. But such a permanent fix would be extremely costly.
Some consumer advocates are skeptical of the argument that doctors will not participate in Medicare and point to a January Government Accountability Office report that indicates Medicare patients’ access to doctors actually improved from 2000 to 2002 even as payments grew at an unexpectedly low rate. “There’s precious little evidence” that doctors will abandon Medicare, said Ron Pollack, executive director of Families USA.

AARP’s Rother said the AMA’s position is “mostly bluff.” The seniors group, however, continues to support the physicians because “our members get excited about” the prospect of losing their doctors, he said.

Former Rep. Barbara Kennelly (D-Conn.), president of the National Committee to Protect Social Security & Medicare, agreed: “I think you’re going to see our seniors on the side of the doctors at all times.”

Mechanisms to constrain the costs of providing healthcare Medicare beneficiaries could become a crucial part of devising a new formula to calculate doctor payments. The Bush administration and prominent legislators such as Rep. Nancy Johnson (R-Conn.), who chairs the Ways and Means Health Subcommittee, have been promoting a concept called “pay-for-performance” that would link Medicare reimbursements to the improvements in the quality of care.

The physician community has cautiously embraced pay for performance as a means to improve the quality of medical care. The AMA’s Hill cautioned that doctors are adamant that such a system does not dictate the practice of medicine. In addition, recent AMA policy guidelines specify that the organization opposes any system that is not voluntary and that penalizes under performing doctors. AMA “absolutely” is open to discussing proposals that do not fit its guidelines, emphasized Hill.

A voluntary program that does not differentiate payment levels based on the highest, lowest and middle quality ratings would neither improve care nor save money, said Tom Scully, the former administrator of the Centers for Medicare and Medicaid Services who spearheaded several demonstration programs to test pay for performance in Medicare.