Will Congress Cut Physicians’ Fees? Will Physicians Stop Taking Medicare Patients?

by Maggie Mahar

This week, conservatives and liberals will face off on a question that has divided the Senate—and united the House:

Should Medicare slash the fees that it pays physicians, across the board, by more than 10 percent? 

Or should it try to save money by trimming the subsidy that it now shells out to private insurers who offer Medicare Advantage?  (Medicare pays private insurers 13 to 17 percent more than it would lay out if the government program cared for seniors directly. In theory, patients receive extra benefits that equal the bonus, though skeptics say insurers are simply pocketing extra profits. )

The battle began, in earnest, on Tuesday, June 24, when the House voted 355-59 to block a 10.6 percent pay cut for physicians which was scheduled to kick in on July 1.

In a stunning bi-partisan vote, the House decided to raise the money Medicare needs another way—by ending the private fee-for-service version of Medicare Advantage by 2011. (For Medicare, this is the most expensive version of Medicare Advantage: it costs the program 17 percent more than traditional Medicare, and as I wrote in December, insurers are not providing the quality of care that the Medicare Payment Advisory Commission (MedPac) expected.  According to the Washington Post, the legislation could result in $14 billion less for insurers over five years.

When the Senate saw the House vote, Senators were astonished that the House was taking on the insurance industry. Earlier in June, Senate Democrats floated a similar bill, with little hope of success.

As Robert Laszewski recently pointed out Health Affairs’ blog: “No one expected it to go anywhere, and it didn’t — failing to advance in the Senate getting only 54 of the 60 votes it needed. Neither Obama, Clinton, nor McCain even bothered to show up for the meaningless vote.�

After all, President Bush has already said that he will veto any bill that touches the insurers’ subsidy.  With that in mind, liberals and conservatives in the Senate Finance Committee didn’t even wait for a House vote: they worked out a bi-partisan compromise that would freeze 2009 physicians’ payments and make no changes to Medicare Advantage.

That way, everyone could go home for the July 4 recess happy.

But when Senate Democrats saw what the House had done, they announced that all bets were off. Senate Majority Leader Reid and the Senate Democrats decided to shelve the bi-partisan compromise and vote on the bill just passed in the House.

Two days later, Senators locked horns, late at night. As I reported last week, it was not a pretty sight. The Democrats missed getting the 60 votes they needed to pass the bill (which spares physicians by just one vote). At that point, Congress left Washington for its seven-day July 4 recess.

With the whole question about slashing physicians fees now up in the air, the Bush administration did the only thing it could do: Mike Leavitt, Secretary of the Department of Health and Human Services, announced a reprieve for the doctors who expected to be hit with a huge pay cut on July 1. The freeze was set to last 10 days.

This means that when Senators returned today (Monday, July 7) they had just three days to resolve the matter.

The office of Senate Majority Leader Harry Reid has announced that the Senate will vote on the bill again this week. Since the funeral for former U.S. Sen. Jesse Helms is likely to put the Senate out of commission tomorrow, probably the vote won’t come until Wednesday or Thursday.

Today, Senate Finance Committee chairman Max Baucus told National Journal that he believes that some Senate Republicans may change their votes. In a conference call, Baucus also said that he thought it was possible that President Bush might not veto the bill.

Medicare Needs the Money

Many Republicans have no interest in making enemies of the nations’ physicians—or Medicare patients. This is especially true of those who are up for re-election.

“Why not just go back to the original Senate bi-partisan compromise?� they ask.  Rather than slicing physicians’ fees Congress could freeze them at current levels. It wouldn’t have to tinker with Medicare Advantage. No one would be angry.

It sounds reasonable, but here’s the catch: Medicare needs the money. This is the back-story that many in the mainstream press are ignoring. Medicare desperately needs to begin cutting the fat in its program.

As the independent Medicare Payment Advisory Commission (MedPac) pointed out in its March 2008 report, four years ago, the Medicare trust fund that pays for hospital stays began to run out of money: in 2004, it started laying out more than it takes in through payroll taxes.

“Since then, the balance in the fund, combined with interest income on that balance, has kept the fund solvent. But in just 11 years, it will be exhausted,� the MedPac report explains. “Revenues from payroll taxes collected in that year will cover only 79 percent of projected benefit expenditures.� And every year after 2019, the shortfall will grow.

Medicare simply cannot continue spending at the current pace. Without structural reform, the program is not sustainable. MedPac, a truly independent and outspoken panel, is clear on this point.

Moreover, MedPac reports Medicare is not getting good value for taxpayers’ dollars. As the panel put it in March: “The Commission is alarmed by the trend in Medicare spending—a growth rate well above that of the economy overall—without a commensurate increase in value to the program, such as higher quality of care or improved health status.�

Make no mistake:  this is not an example of an inefficient government program spending hand –over- fist without caring whether it is getting a bang for the taxpayer’s buck.  In recent years, health care prices have been spiraling–without an improvement in the quality of care that would justify levitating costs—in both the private sector and the public sector.

As this chart below from MedPac’s March report reveals, although rates of growth in per capita spending for Medicare and private insurers differ from year to year, over the long term the trends been quite similar.


Neither the public sector nor the private sector has found a way to rein in runaway health care inflation.

Inevitably, some have suggested that Medicare’s financial problems could be solved if only the elderly had more “skin in the game� in the form of higher co-pays, deductibles and premiums.

But, in fact,  Medicare is already asking seniors to pay more than some can afford.

Premiums from beneficiaries finance twenty-five percent of Medicare, Part B, which covers physicians visits and outpatient care. (General revenues finance the remaining 75 percent; at this point Medicare Part B consumes 10 percent of all personal  and corporate income tax revenue.)

Between 2000 and 2007, Medicare beneficiaries faced average annual increases in the Part B premium of nearly 11 percent. Meanwhile, monthly Social Security benefits, which averaged around $900 per month in 2005, grew by about 3 percent annually over the same period

Then there is the deductible. Before 2006, lawmakers rarely increased Part B’s annual deductible. But that year, they raised it to $110 and it now goes up, each year, at the same rate as growth in Part B spending per person. (Seniors are now paying $135.)

These may not seem like large sums.

But the truth is that most seniors have very little discretionary income. As MedPac notes in a 2007 report about half of  Medicare’s beneficiaries have incomes (from all sources, including savings) of about $20,000 or less. Eighteen percent earn less than what the government defines as the poverty level ($9,060 for people living alone and $11,430 for married couples.) And 49 percent are living on incomes that put them at 200 percent of the poverty level- — or below.

(“Income� includes every dollar that comes into the senior’s home, including Social Security, dividends and capital gains, Food Stamps and any income from part time jobs.) In 2005, Social Security payments equaled 50 percent or more of annual income for about 65 percent of elderly recipients.

Squeezing seniors
is not the answer. Medicare needs to find another way to put itself on a sound financial footing.

The good news is that it can be done. There is enough waste in Medicare spending (as there is private sector health care spending), to cut our health care bill by a third–and simultaneously improve quality. The question is this: does it makes sense to take an ax to physicians’ fees, trim Medicare Advantage, or look elsewhere for the funds needed?

What Will Happen This Week?

No surprise, the American Medical Association backs the bill that would spare the doctors, warning that if Congress agrees to the scheduled cut, many physicians will stop taking new Medicare patients. Some may even “fire� the patients they have now. Others will simply retire.

Many observers assume that physicians would never follow through with such threats. How could they close their doors to the elderly?

The answer is that while Medicare pays some specialists handsomely for some services, the internists and family doctors who practice what many call “cognitive medicineâ€?–listening to and talking to patients—are in short supply precisely because they are not well compensated.

Recent figures reveal that physicians who specialize in internal medicine or family practice can expect to start out earning $120,000 to $135,000 a year, and over time, can hope to average $160,000 to $175,000. For a student who emerges from medical school at age 32 with, say, $150,000 to $200,000 in debt, at a time of life when he or she might want to buy a home or start a family, these are not enticing numbers.

Yet primary care physicians are the doctors that seniors most need to co-ordinate and manage their care. Reformers who believe that every American deserves a “medical home� are right.  But who is going to pay the bills to keep the lights on in those medical homes? Primary care physicians are retiring and newly-minted M.D.s are not taking their place. According to MedPac’s most recent June report , 30 percent of Medicare beneficiaries who are looking for a new primary care physician say that they are having  difficulty finding one.

As for the doctors themselves, “Physicians are weary,� Dr. Josie K. Williams, president of the Texas Medical Association, explained today in a phone interview.

“They are tired of the games that Congress has been playing. This is the third time in 12 months that legislators have threatened cuts—only to back off at the 11th hour. Congress keeps kicking the can down the road,� Williams added, referring to the fact that when legislators pull back, they don’t repeal the cuts, they just postpone them.

Meanwhile, the cost of maintaining a practice goes up—and Medicare fees don’t. Some doctors have managed to make up the difference on volume, but others are hurting. “For some primary care guys in rural areas, Medicare patients comprise 80 percent to 90 percent of their practice,â€? Williams explains. In recent years, they’ve seen a 20 percent increase in the cost of practicing—and no cost-of-living adjustments from Medicare.”

Across the nation, frustrated doctors have already begun putting up signs. In Topeka, Kan., Dr. Kent E. Palmberg, senior vice president and chief medical officer of the Stormont-Vail HealthCare system, said its 70 primary care doctors were “no longer accepting new Medicare patients as of July 1 because of the draconian cut in Medicare reimbursement.�

Dr. Gerald E. Harmon, a family doctor in Pawleys Island, S.C., said he decided last week that he would not take new Medicare patients “until further notice.�

“This is not what we enjoy doing,� says a notice in his waiting room. “It is what we must do to maintain financial viability.� Dr. Harmon added that Democrats had been more helpful on Medicare legislation, but that the two parties shared responsibility for the impasse.

In Texas, Williams observes, seniors face a serious shortage of doctors willing to take care of them. “Our survey show that the number of doctors taking Medicare is down 20 percent since 2000. If you look at primary care doctors, you find that only 38 percent will take new Medicare patents.�

She recalls a well-known Texas physician who retired recently, and had a very hard time finding a new primary care physician who took Medicare. “Finally, he had to call in a chit,â€? Williams confides. “ He went to a doctor and said, ‘Look, I took  care of your children for all of those years. Now, I need someone to take care of me.’â€?

In part 2 of this post, I will talk about why both the AARP and military families are supporting the bill that swept the House—and is now awaiting a second vote in the Senate.

I’ll also report on how the bill’s supporters are targeting Republican Senators up for re-election, hoping that they will switch their votes. Who are these Senators? Will they switch?

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