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Financial Impact of the 2011 Medicare Physician Fee Schedule, an SGR Fix, and the Federal Debt Commission

by Jessica DeMartino, PhD, Manager, Health Policy Programs

On November 2, 2010, the Centers for Medicare and Medicaid Services (CMS) released the display copies of its final Calendar Year (CY) 2011 Medicare Physician Fee Schedule (PFS) and Hospital Outpatient Prospective Payment System (HOPPS) rule. The American Society of Clinical Oncology (ASCO) has reported that the final rule indicates that the areas of hematology and oncology will not face any reduction in reimbursement during 2011. Issues addressed in the final notice are separate from the looming expiration of the latest sustainable growth rate (SGR) patch due to expire at the end of November.

The latest SGR patch is set to expire November 30, 2010 unless Congress takes action to either fix the current payment structure or to postpone the payment cliff again by enacting another patch. In 2010 alone, the reduction in Medicare rates has been delayed four times. Physicians face a 23 percent cut in Medicare rates on December 1 and another cut on January 1, 2011 that will push the total cut in Medicare rates to approximately 27 percent. Late Thursday, November 18, the Senate passed a measure that would effectuate a 31-day payment "patch" to the Medicare SGR formula and temporarily stave off the 23 percent cut. The House, already adjourned for the Thanksgiving recess, will take up the measure when it reconvenes, which would then prevent the December 1 reimbursement cut physicians will otherwise face. The uncertain political climate and anticipated fall-out of the mid-term elections are leading most analysts and prognosticators to predict that we will see only a short term fix of at most two months. This will push the problem into the next Congress where again they will be asked to permanently repeal the flawed payment update formula.

Physicians and other health care providers may also be affected by efforts to reduce the federal deficit. The deficit can be considered in two parts: medium-term and long-term deficits. Medium-term deficit was created by the Iraq and Afghanistan wars, the 2003 Medicare Drug Plan, the Bush tax cuts, the recession, and the government’s response to the recession, while long-term deficit comes from the projected growth of Medicare, Medicaid, and to a lesser extent, Social Security. Health care providers should be especially concerned with the items that compose the long-term deficit. A recent proposal from Alan Simpson, a former Republican senator from Wyoming, and Erskine Bowles, former chief of staff to President Bill Clinton, the two chairmen of the National Commission on Fiscal Responsibility and Reform, contains measures to deal with the Medicare reimbursement crisis as well as other possible reductions in health care spending. Their proposal contains ways to erase the SGR debt in the medium term by:

• Creating a new Medicare payment system designed to reduce costs and improve quality of care.
• Enacting comprehensive tort reform. In particular, place a cap on noneconomic damages in malpractice cases.
• Requiring Medicare patients to pay more out-of-pocket for services they receive.
• Requiring pharmaceutical companies to pay Medicare rebates for brand-name drugs as a condition of participating in Medicare Part D.
• Strengthening the Independent Payment Advisory Board (IPAB).
• Expanding successful cost-containment experiments conducted by CMS.

Simpson and Bowles also proposed additional cost-saving methods totaling $395 billion from 2012 to 2020 that could offset the cost of an SGR fix. These included reducing federal spending on graduate and indirect medical education, increasing Medicaid copays, and converting the federal government’s share of Medicaid payments for long- term care into a capped allotment. Several recommendations were also made for trimming federal health care expenditures in the long-term. One of the recommendations is to set a global target for all federal spending on health care, including Medicaid, Medicare, the Children’s Health Insurance Program, and Accountable Care Act initiatives. All of the proposed cost-saving measures will have both supporters and detractors in the health care community.

The remainder of 2010 and 2011 may bring large changes to the reimbursement and payment of all health care providers. The SGR problem must be dealt with on a more permanent basis than what has occurred in 2010, while it remains to be seen how the country’s efforts to deal with the federal deficit will affect health care.

References:
CMS Releases Final Fee Schedule; No Reduction in Reimbursement Rates to Oncology,http://www.asco.org/ASCOv2/Practice+%26+Guidelines/ASCO+in+Action. Accessed November 17, 2010.

David Leonhardt, O.K., You Fix the Budget, The New York Times, http://www.nytimes.com/2010/11/14/weekinreview/14leonhardt.html?_r=1. Accessed November 17, 2010.

Robert Lowes, Drastic Doc Fix Proposed by Federal Debt Commission, Medscape Medical News, http://www.medscape.com/viewarticle/732312_print. Accessed November 12, 2010.