Connections : Join the Conversation - The blog of Biomet CEO Jeffrey R. Binder

American physicians began another year not knowing how much they will be paid for treating Medicare patients. By law, physicians are supposed to receive a 21.3% reduction in 2010 Medicare fees.¹ Because an economic hit of that magnitude could force many physicians to opt out of the Medicare program, it's likely Congress will prevent the cut from happening, as they have for the past seven years.² But Congress has put off deciding how much physicians will get paid for services they're currently providing.⁸

It's become a yearly ritual, with physicians (and those who depend on physicians for their jobs) holding their collective breath until Congress decides what to do. Usually Congress either freezes physician pay at the previous year's level, or provides a nominal increase that does not reflect the increased cost of running a medical practice.

This bizarre annual drama arises from the poorly-conceived Medicare physician payment system, known as the Sustainable Growth Rate (SGR) system, which Congress enacted in 1997.³

The SGR system has no defenders and many detractors, including the non-partisan Medicare Payment Advisory Committee (MedPAC)³, and the White House.⁵ Nonetheless, we are no closer to a workable alternative.

Here's how the SGR system works:

Medicare sets "allowable" amounts for physician services each year. If the actual amount spent on these services exceeds the allowable amount, the difference is made up in subsequent years by cutting physician reimbursement.^1,2,3 It's no surprise that, as the population ages, Medicare routinely exceeds its budget for physician services.

In effect, physicians incur a "debt" to the government, obligated by law to pay back reimbursement received for legitimate services provided.

Congress has been justifiably squeamish about implementing payment reductions, and has intervened to prevent the cuts every year since 2002.^2,4 As healthcare economist Paul Ginsburg stated, "Not only would large reductions in physician payment rates harm physicians, but they also jeopardize [patient] access."⁴

Because Congress routinely suspends the cuts, the government never collects on its "debt." So the cuts mandated by SGR get bigger and bigger. Besides the mandated cut of 21.3% for 2010, the government projects pay reductions of 2% per year for several subsequent years.⁶

Instead of building physician payment reform into health care reform legislation, the House and the Senate chose to introduce separate bills addressing the issue. The House bill passed, but the Senate bill did not make it to the floor for a vote, facing opposition by several Democrats and all Republicans. Rather than introduce the House bill in the Senate, both chambers agreed to freeze physician payment rates at 2009 levels until February 28, at which point it's expected that they will have devised a solution of some sort.⁸ Whether it's another bandage or a true reform of the flawed system remains to be seen.

Why didn't Congress address physician payment earlier?

The principal reason the bill failed in the Senate, and was carved out of the House reform package, was its supposed cost. The Congressional Budget Office (CBO) calculated the cost of fixing the SGR at $210 billion over 10 years⁶, requiring legislators to find offsets in order to meet President Obama's goal of deficit-neutral healthcare reform. This number was derived, in large part, from the money that the SGR system would have saved from reducing physician compensation.

But the savings are illusory. Congress has routinely demonstrated that it has no intention of invoking SGR pay cuts despite statutory authority to do so. So if the money was never to be collected, does not collecting it really add to the deficit?

While Congress dithers, physicians are left twisting in the wind. Physician practices are businesses, and no business can operate effectively without some way of projecting revenue and cash flow. Practices that depend on Medicare are unable to make informed decisions about hiring, investing in patient care technology, pay raises for staff, and other crucial operational issues that affect the ability of physicians to treat patients. In the meantime, inflation continues to increase the cost of operating practices, eroding the ability of physicians to keep their doors open to Medicare patients.

Congress must act now to ensure that enough doctors are willing to treat Medicare patients. By once again signaling that fair compensation for physicians can be "back-burnered," Congress may induce more physicians to follow the example of the Mayo Clinic in Glendale, Arizona and restrict or reduce the number of Medicare patients they treat.⁷