Mark Liebow: Cut in Medicare fees fail to yield expected complaints

Medicare cut professional fees by 21 percent Wednesday. Where is the wailing and gnashing of teeth we might expect from such a savage cut?

We aren't hearing complaints because the cut may be reversed by April 15, before any claims are paid at the lower rates, and because the problem that led to the cuts may be repealed. The problem is the Sustainable Growth Rate formula, and if the Senate passes and the president signs (as he said he would) the bill the House of Representatives passed last month, the formula will be eliminated.

The formula started as Congress struggled to create a way to calculate how much to pay for each professional service provided to a Medicare beneficiary. Each service has a relative value defined in the Resource-Based Relative Value Scale, so Medicare needed a conversion factor to know how much to pay for each service. For the five years since the scale became the way Medicare paid for services, Congress had to pass a law each year setting one or more conversion factors, and it didn't want to keep that up.

In 1997, Congress passed a bill that included the Sustainable Growth Rate formula to set a conversion factor each year. The formula was designed so the percentage growth in Medicare Part B payments, which include fees for professional services, diagnostic testing and outpatient treatments, would increase less than the percentage growth of the Gross Domestic Product.

It may seem like an admirable goal, but there were two big problems. First, the percentage growth in Medicare Part B spending each year always exceeded the annual percentage growth in GDP. Second, the federal government must pay every legitimate claim for Medicare services and cannot limit how much it pays each year.


The people who wrote the formula didn't have a solution to the first problem, but they did to the second. If the amount actually paid for Part B services exceeded the amount that should have been paid under the formula, Medicare would cut the excess from any increase the formula would give the next year. Obviously, if this goes on long enough, physician fees drop each year.

When the law passed, the economy was growing rapidly. As a result, the first few years saw reductions in formula increases, but physicians still received annual Medicare fee increases. However, when the growth ended after 2000, Medicare fees were cut by more than 4 percent in 2002. Not surprisingly, professional organizations started to lobby Congress to see that this never happened again.

During the next 13 years, Congress repeatedly overrode planned cuts, holding fees stable or giving minimal fee increases. However, Congress never changed the formula, so future cuts got deeper and deeper. Worse, the formula no longer reflected how Medicare worked. Congress added benefits and medical practice changed so Part B costs increased faster than before. Even worse, the formula had no expiration date, so budget forecasts assumed it would be used forever. This meant attempting to repeal it would look as if future budget deficits would increase by hundreds of billions of dollars, making repeal attempts politically challenging.

For the last few years, the potential cuts were 20 percent to 30 percent. There was no policy rationale for such deep cuts, which would be devastating to many practices. This increased political pressure for Sustainable Growth Rate repeal. Last year, a bipartisan agreement for a Sustainable Growth Rate repeal was reached involving House and Senate members, but it foundered when legislators from different parties could not agree on how to raise enough revenue to offset fully the budgetary costs. Instead, there was a short-term patch through April 1.

This year, Speaker John Boehner and Minority Leader Nancy Pelosi, working with last year's proposal, decided to offset the nominal budgetary costs only partially. They recognized there was no long-term solution with a full budgetary offset and no reason to continue the Sustainable Growth Rate formula.

Their bill, which includes a reauthorization of an important health insurance program for children, passed the House March 26 with 392 votes. Tim Walz voted for it. The Senate had one day to consider the bill before going on Easter recess and did not take it up immediately. However, the Senate will be back in session April 13 and could pass it then.

Repealing the Sustainable Growth Rate formula would be a tremendous relief to those who care for Medicare patients. The time and energy involved in fighting the inappropriate cuts called for by the formula could be used to help patients. Legislators would appreciate hearing about other issues from health professionals. All we need is the bill's quick passage in the Senate. That will make these 21 percent cuts just a bad April Fool's joke.

Mark Liebow is a Rochester internist.

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