AAGP Statement on the Medicare Physician Fee Schedule
Subcommittee on Health of the Committee on Ways and Means, U.S. House of Representatives
American Association for Geriatric Psychiatry
2/10/2005
The American Association for Geriatric Psychiatry (AAGP) appreciates the opportunity to share our concerns with the Members of the Subcommittee on Health on the problems associated with the Medicare physician fee schedule. AAGP is a professional membership organization dedicated to promoting the mental health and well-being of older people and improving the care of those with late-life mental disorders. Our membership consists of 2,000 geriatric psychiatrists as well as other health care professionals who focus on the mental health problems faced by senior citizens.
Physicians who treat Medicare beneficiaries, as Medicare providers, accept a fee schedule that is, at baseline, often significantly lower than their “usual and customary” fee schedule for providing services to their self-paying patients. As you are aware, these physicians continue to face the prospect of additional across-the-board reductions in the fees paid by the program. Unlike many other payment “cuts” in Washington, these reductions are not simply reductions in a rate of increase, but are absolute reductions in fee levels. In 2002, fees were cut by 5.4 percent below 2001 levels. Although Congress has taken action since that time to hold off additional reductions on a temporary basis and in fact provided for a positive update of 1.5% for 2004 and 2005, it is clear that a permanent resolution to the flawed formula governing physician payments must be enacted. This issue is most important because of the effect it will have on access to care for Medicare beneficiaries, especially for the vulnerable among them – those elderly and disabled persons who have multiple, complex medical conditions and limited financial resources.
As a result of the recent and projected reductions, many physicians are having to reevaluate their willingness to treat Medicare patients, as well as their willingness to be “participating physicians” who accept Medicare payment as payment-in-full for their services. Consequently, many Medicare patients are already having trouble finding physicians to treat them. A survey by the American Medical Association following the 5.4 percent cut in 2002 found that 24 percent of physicians had either placed limits on the number of Medicare patients they treated or planned to institute limits. In the case of geriatric psychiatrists – most of whose patients are enrolled in Medicare – the impact of these reductions is particularly severe and is causing at least some in our profession to consider leaving clinical practice altogether to enter other fields where their experience and expertise are valued more appropriately.
The impact on geriatric psychiatrists – and their patients – is compounded by the discriminatory reimbursement policies Medicare already imposes on consumers of mental health services. Under current law, Medicare requires beneficiaries to pay a 20 percent copayment for Part B services with the single exception of a requirement of a 50 percent copayment for outpatient mental health services. The lack of parity for mental health treatment is unconscionable – and of great consequence to older adults who feel more stigmatized by psychiatric illness than any other group. Despite widespread need, many seniors decline, delay, or drop out of treatment because of the high copayment. In addition, current law discriminates against the non-elderly disabled Medicare population, many of whom have severe mental disorders.
The result of these factors – declining reimbursement rates, existing discriminatory reimbursement for mental health care, and stigma – will undoubtedly compound the existing serious access problems for Medicare beneficiaries in need of mental health treatment – either in finding a physician to treat them or in “balance billing” charges by physicians who previously accepted assignment.(1) Shifting costs to beneficiaries – many of whom are low income – can make essential mental health care unaffordable.
The fee reductions that are forcing these choices stem from the mechanism for automatic annual fee “updates” that is currently part of the Medicare statute. For most types of providers, Medicare law incorporates a mechanism by which payment rates are automatically updated annually for inflation, in much the same way that Social Security and other Federal cash benefits are automatically increased by the cost of living adjustment (COLA) each year.
However, since the inception of Medicare physician payment reform in the early 1990s, updating physician fees has been handled somewhat differently from those of other providers. The payment reform law established a mechanism under which the annual inflation update for physicians’ services is automatically adjusted -- above or below the rate of inflation -- based on how actual Medicare spending for physicians’ services compares to an annual spending target computed by the Centers for Medicare and Medicaid Services (CMS) based on a formula set out in the law.
Until recently, this mechanism resulted in some relatively modest reductions below full inflation – as well as some “bonuses” above inflation. However, changes made in the “Balanced Budget Act of 1997” (BBA) tightened the annual spending targets, making it substantially more difficult for physicians to meet them.
Before the BBA, the annual spending target was based on a formula that included a reasonable allowance for spending increases due to changes in technology and other related factors affecting the “volume and intensity” of services provided by physicians. The BBA replaced this allowance with a much less generous proxy – the estimated increase in the gross domestic product (GDP) – which bears no relationship to the factors affecting volume and intensity of services provided. The impact of this change can be demonstrated quite simply. Where the volume and intensity allowances for 1992 and 1993 were 6.8 percent and 6.0 percent, respectively, the corresponding GDP allowances for 1999 and 2000 were 1.3 percent and 2.7 percent.
Furthermore, because the BBA made the new targets cumulative – so that a breach in one year’s target would have to be fully offset by corresponding expenditure reductions in later years – inaccurate CMS estimates of several components of the formula used to compute the spending targets for 1998 and 1999 have been carried forward, producing inappropriately low targets in each subsequent year.
For example, actual growth in the GDP for 1998 and 1999 was greater than the estimates on which CMS based its targets. Growth in the beneficiary population is another component of the target. CMS overestimated beneficiary migration from traditional Medicare into managed care plans during 1998, which had the effect of understating beneficiary enrollment growth in the traditional program. All of these forecasting errors resulted in lower targets than would have occurred if better data had been available.
Unfortunately, CMS interprets the law as precluding it from correcting these errors. Although AAGP takes no position on this arcane legal issue, we do think that it is fundamentally unfair to make physicians – and Medicare beneficiaries – pay for estimates that everyone agrees in hindsight were wrong.
Physicians want to serve all Americans. However, they simply cannot afford to accept an unlimited number of Medicare patients into their practices when they are facing continued payment reductions. These drastic cuts must be stopped before they devastate Medicare beneficiaries’ access to health care.
We commend the Congress for its action to avert the impending reductions in Medicare physician fees for 2004 and 2005. We note, however, that the legislation does not address the fundamental defects in the formula for setting annual Medicare spending targets for physicians’ services and that projections for 2006 under current law will result in a cut of 5.2 percent.
Especially in light of the recent recommendation by the Medicare Payment Advisory Commission (MedPAC) for an increase of 2.7 percent for 2006, we urge Congress to revisit this issue this year and – at a minimum – to replace the GDP component of the formula with a more realistic proxy for changes technology and other factors affecting the volume and intensity of the services furnished to Medicare beneficiaries.
Thank you again for the opportunity to share our views on this important issue. We look forward to working with you as you craft a correction to the Medicare physician payment formula.
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1. Although “balance billing” may provide a short-term safety valve that allows some physicians to continue treating Medicare patients, the additional amount that Medicare permits physicians to collect from beneficiaries under its balance billing limits will not fully offset the cumulative reductions in program payments in the future. Moreover, some States prohibit balance billing Medicare beneficiaries as a condition of licensure in the State, which leaves those physicians without this option.
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