Medicare Publishes 2008 Payment Rule; Unless Congress Intervenes, Physicians Will See Significant Cuts
[Posted 11/08/07]

Depending on your practice location, your Medicare reimbursement could drop by up to 19.2 percent next year, a combined result of the 10 percent sustainable growth rate (SGR) cut and the geographic payment updates announced last week by the Centers for Medicare & Medicaid Services (CMS).

As you know, the 10 percent cut is the result of the flawed SGR formula that was supposed to establish a “sustainable” growth rate for spending on doctors’ services. The formula allows Medicare spending on physician services to grow at the rate of the gross domestic product (GDP), but it actually penalizes physicians because the cost of physician services rises more rapidly than the GDP. AMA and CMA have been working vigorously to convince Congress to change the formula and reverse the 10 percent cut scheduled to take effect January 1.

Geographic Payment Cuts
The 2008 physician payment rule also updates the Geographic Practice Cost Index (GPCI) and Geographic Adjustment Factors (GAF) used to calculate Medicare payment rates for all counties nationwide. Unless Congress acts to stop these GAF reductions, most California counties will see geographic payment reductions under this new rule (Santa Clara -9.1 percent, San Mateo -4.4 percent, San Francisco -4.4 percent, Alameda/Contra Costa/Berkeley -3.9 percent, Los Angeles +2.3 percent, Ventura +3.4 percent, Orange +2.1 percent, Marin/Napa/Solano -3.6 percent, Rest of California -0.6 percent).

The 2008 payment rule does not include a fix for California’s specific geographic payment problems. Counties are grouped into Medicare payment “localities,” theoretically with other counties with similar practice costs. Because the payment localities have not been updated in 10 years, many recently urbanized counties remain inappropriately grouped into payment localities along with lower-cost (mostly rural) counties.

As you may recall, CMS earlier this year set forth three options for updating California’s payment localities. The three proposals would have moved higher-cost counties into new or more appropriate localities so that they could be reimbursed based on more accurate geographic practice costs. Unfortunately, the proposed rules were fraught with errors and, because federal law requires changes in the Medicare program to be budget neutral, all three options would have required some localities to suffer payment cuts to offset the increases for the most severely underpaid counties.

CMA was unable to fully support any of the options, as proposed. CMA asked CMS to adopt an option that most closely meets CMA policy developed by the 2006 House of Delegates, which would have updated the payment localities and minimized subsequent payment cuts to California’s rural physicians, but CMS decided that the issue requires “further study and analysis.”

“CMS’s inaction is incredibly frustrating for physicians,” says CMA President Richard S. Frankenstein, M.D. “A locality update is long overdue. CMA will continue to seek solutions to this problem.”

There Is Still Hope
As you may know, CMA is sponsoring federal legislation to fix the geographic payment problems. Because of the bipartisan support for CMA’s sponsored GPCI bills among congressional leaders, California Congressman Pete Stark, chairman of the Health Subcommittee of the House Ways and Means Committee, included a GPCI fix in the legislation that passed the House this summer. The bill would not only update California’s geographic payment localities in 2008, but would also prevent any geographic payment reductions for three years. The bill would also stop the 10 percent SGR cut in 2008 and the 5 percent cut scheduled for 2009, and instead provide .5 percent annual update for two years without creating more SGR debt in future years. These provisions establish a path to long-term reform and allow CMA three years to work with Congress to craft viable alternatives to Medicare’s flawed payment formulas.

The Senate is expected to tackle the Medicare issues before the end of the year. Once it does so, the House and Senate Medicare packages will be reconciled by a joint House/Senate conference committee. Congressman Stark has pledged to continue to champion the geographic locality issue in conference committee.

Click here for CMA's latest federal issues summary.

Contact: Elizabeth McNeil, 415/882-3376 or emcneil@cmanet.org.