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The embarrassing failure of Congress to address physician pay

Posted: Jun-14-2010 9:33 AM ET  |   |  Comments (3)

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This year, the U.S. Congress has vexed the nation's physicians like never before. Three times, Congress went on recess without resolving a looming 21.3% pay cut mandated by law. Three times, CMS had to hold physician claims in order to give Congress time to avert a devastating reduction in physician pay. And three times, Congress has failed to come up with a workable long-term solution to what has become an annual farce. It's now mid-year, and doctors still don't know what Medicare will pay them to treat patients.

The annual scramble

Every year, Congress scrambles to avert potential disaster created by the Medicare physician payment formula, known as the Sustainable Growth Rate (SGR). Under SGR, if Medicare exceeds its budget for physician payment in any given year, it must recoup the variance by reducing payment in subsequent years. The formula, in effect, creates a "debt" that the nation's physicians owe to Medicare, which is authorized to extract the entire amount from doctors in a single year.1

Because Congress has repeatedly forestalled the scheduled pay reductions, approximately $20 billion in Medicare overages have accumulated since 1998,2 requiring the government to reduce physician pay by 21.3% this year.3 The reduced pay rate will then become the baseline for physician pay moving forward. So the cuts will impact physician practices year after year. And it's not just Medicare payment; the cuts will also affect physician contracts with private payors tied to Medicare pay rates.

Congress kicks the can again

As it stands, the House has passed a 19-month reprieve, providing a 2.2% increase for the rest of the year, and 1% for 2011, beginning in January. When that expires, however, physicians will face a 33% pay cut.3 The Senate has not acted on this legislation yet.

In the meantime, in order to address growing demand from Medicare patients, private practitioners add staff, infrastructure and expense. Under these circumstances, physicians have no control over their business planning. Nor can they modify their behavior to avoid being put into this untenable situation; the formula is a blunt instrument that whacks all providers, regardless of how effective they are at treating patients and controlling costs.

Access denied

A dramatic pay cut is not required to reduce the number of physicians who accept Medicare. In fact, it's happening already. Since enactment of the current Medicare payment formula, the percentage of surgical specialists accepting all Medicare patients has dropped dramatically.4,5

Specialty % accepting all Medicare patients, 1997 % accepting all Medicare patients, 2008
Medical specialists 76.3% 73.9%
Surgical specialists 81.5% 69.7%

Source: Cunningham P., et al., Center for Studying Health System Change, Results from Community Tracking Study, No. 12, January 2006; Boukus E, et al., "A Snapshot of U.S. Physicians: Key Findings from the 2008 Health Tracking Physician Survey," Data Bulletin, Center for Studying Health System Change, September, 2009

In January, the Mayo Clinic in Glendale, Arizona announced it would no longer accept Medicare patients.6 In Texas, more than 300 doctors have dropped Medicare since 2008. Fifty dropped out during the first three months of this year.7

These examples are the leading indicators of an access problem for Medicare patients. In fact, 42% of physicians already restrict Medicare patients to some degree.5

It's not as complicated as Congress is making it

Congress operates under "pay-as-you-go" rules (PAYGO) that require it to offset new spending so that it does not add to the deficit. The Congressional Budget Office is the final arbiter of what does and does not add to the deficit.

Here is how CBO treats physician pay, as explained by Bruce Vladeck, Ph.D., former HCFA (now CMS) Administrator:
    "…since [the physician pay formula] was implemented in 1998, total Medicare physician expenditures have exceeded the allowed amounts by only $20 billion (on a total of almost $1 trillion)…

    "In a rational world, Congress would write off the $20 billion as a relatively small policy error and establish a more realistic prospective formula. But under Congressional budget rules, the cost of doing so is not $20 billion, but $20 billion per year, compounded by inflation, times 10 years. The Congressional Budget Office and the Office of Management and Budget are required to assume that someday Medicare's physician fees will be permanently lowered to SGR levels and that anything above that is 'extra spending.'"2
Following this logic will ensure that the physician pay formula is never fixed. Congress needs to deal with the reality of the situation: SGR levels are not attainable and do not reflect the reality of the past seven years, during which Congress has repeatedly suspended physician pay cuts, demonstrating that it considers the SGR formula irrelevant and unworkable. In effect, there is no formula for Medicare physician payment; Congress makes it up every year.

Recommendation: tie physician pay to the cost of doing business

Price caps and centrally-defined reimbursement do not optimally allocate resources or reward quality. As we have argued before, patients and physicians should have greater control over pricing and payment of Medicare treatment. The new healthcare law has rendered that argument moot for the time being.

Fine. Take the simple step of tying physician reimbursement to the Medicare Economic Index, the government's own metric of the cost of running a physician practice. Indeed, the burden of proof should be on Congress to argue why the Medicare Economic Index is NOT the appropriate metric.


Congress began working on healthcare reform legislation in November, 2008. We now have 2400 pages of laboriously crafted new rules for our healthcare system. Delivering healthcare to 32 million more people requires a growing supply of trained physicians. That should have been, and should be now, the first order of business.

  1. "Estimated Sustainable Growth Rate and Conversion Factor for Medicare Payments to Physicians in 2010," Centers for Medicare and Medicaid Services, available at
  2. Vladeck BC, "Fixing Medicare's Physican Payment System," New England Journal of Medicine, May 27, 2010.
  3. DoBias M, "'Doc fix' clears House; cuts still loom," Modern Healthcare, May 28, 2010.
  4. Cunningham P., et al., Center for Studying Health System Change, Results from Community Tracking Study, No. 12, January 2006;
  5. Boukus E, et al., "A Snapshot of U.S. Physicians: Key Findings from the 2008 Health Tracking Physician Survey," Data Bulletin, Center for Studying Health System Change, September, 2009
  6. "Medicare and the Mayo Clinic," WSJ Online, January 8, 2010.
  7. "Texas doctors opting out of Medicare at alarming rate," Houston Chronicle, May 18, 2010.

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