Medicare Reimbursement Cuts - A Policy Perspective

This article will evaluate the challenges associated				(Hartman, Smith, Heffler, & Freeland, 2006,
with Medicare reimbursement cuts. The amount				p.41)." The growing size of Medicare threatens to
of expenditure in this program has skyrocketed				encroach on other fund sources and programs. It
since its inception in 1965 despite various				is in the best interest of the federal government
measures to control growth. Short-term legislative				to reform Medicare and keep expenditure within
fixes have been buying time for the development				manageable boundaries. Despite the benefits
of long-term solutions while various stakeholders				involved in implementing cuts, the types of cuts
stand to win and lose as they are faced with				which are made have the potential for backlash.
forthcoming reimbursement cuts. Among these				Cuts to reimbursements are exceptionally
stakeholders are the federal government,				contentious in the healthcare community. The
politicians, third-party payers, Medicare recipients,				federal government must seek and implement
and healthcare providers. Foreseeable problems				responsible controls to mitigate harm while
exist in implementing reimbursement cuts including				effectuating reform.
barriers to patient care and the financial viability of				Politicians are another group affected by policies
healthcare providers who rely on Medicare patient				on reimbursement cuts. Their role is fairly
revenues. Continual debate over short-term				complex as their duties and functions are
Medicare cuts will be eclipsed by policy changes				reflective of the competing interests of different
related to the viability of the program and				populations, groups, and political parties.
long-term sustainable healthcare funding and				Expenditure reduction and reimbursement cuts
delivery systems.				affect a wide range of constituents in different
Introduction				manners. The role of Medicare reimbursement
Health care spending currently accounts for 16%				cuts in political decision-making depends on how
of the gross domestic product of the United				these groups are impacted. Politicians may win or
States (Getzen, 2007). New technology and higher				lose depending on how the effects of these cuts
incomes have increased overall healthcare				unfold. The amount of healthcare lobbying that
spending and driven up costs. The question raised,				takes place on Capitol Hill speaks to the magnitude
is how health care expenditure will be controlled				of interests involved.
within government programs like Medicare. The				Third party payers are heavily influenced by
formation of Medicare and Medicaid by the Social				Medicare reimbursement methodologies. Medicare
Security Acts of 1965 established the				reimbursement cuts may likely equate to
government as a major payer in health care.				reimbursement cuts by other third-party payers,
Regular reimbursement through government				thus exacerbating many of the problems
funding allowed hospitals and other institutions to				experienced by healthcare providers. Significant
grow in size, capacity, and capital. Controlling				resentment already exists from problems
growth and costs has become a major concern				associated with current reimbursements models
as proportional expenditure on healthcare has				and additional cuts may hurt payers in the
increased. Of the various cost-containing				short-run. In the long-run payers will benefit from
measures employed to control expenditure,				moderated expenditure and more stable growth
reimbursement cuts are some of the most				rates.
contentious issues.				Medicare recipients are another prime group
Background and Significance				affected by cuts. A major concern associated
Medicare has evolved in numerous ways since its				with reimbursement cuts is the reduction of
inception in 1965. Physicians were initially				benefits and programs to these recipients.
reimbursed by the program for services covered				Technological advancement has provided patients
and were able to bill patients for non-covered				with a vast array of services, procedures, and
costs. Hospital reimbursement methods also				pharmaceuticals. Benefit and program cuts may
followed similar patterns until a change was made				translate into a reduction of these features which
in 1983 from "reasonable cost" to the prospective				they have become reliant on. Reimbursement
payment system based on diagnostically-related				cuts may also contribute to barriers in accessing
groups. In 1992 the physician fee schedule				care. Lower reimbursements from Medicare may
replaced the charge-based system. The				lead providers to be less inclined to accept new
Sustainable Growth Rate (SGR) of 1998 was				Medicare patients. Studies have already been
created to control spending even further. Annual				conducted on barriers associated with general and
targets for spending are established and physician				specialized care related to payer type. In a study
payments are reduced if spending exceeds these				conducted on appointment setting for
limits.				dermatology patients, "...some access limitations in
The bulk of today's Medicare costs are different				hot spots where Medicare payments are low
than those of the past. A larger portion of				relative to commercial insurers suggest that
expenditure is attributable to outpatient services				patients in these areas may be most sensitive to
covered by Part B of Medicare. This expenditure				further payment reductions (Resneck, Pletcher,
has consistently exceeded the established formula				& Lozano, 2004, p.85)." The case can be
as specified in the SGR. Forthcoming adjustments				made that additional reimbursement cuts may
in the form of reimbursement cuts propose				further expand these "hot spots" for Medicare
major problems for physicians receiving				recipients. Additional barriers may emerge as the
reimbursements for services rendered to their				expected cuts related to the SGR come to
Medicare patients. "Whereas over the next				fruition. In the short-term seniors stand to lose
several years the SGR formula will cut doctors'				from reimbursement cuts but may benefit in the
reimbursement by an estimated 25 to 35				long-run from a more sustainable delivery system
percent...[and] deep cuts in physician				that can result from Medicare reform.
reimbursement will force many doctors out of the				Physicians and hospitals stand to lose in the
Medicare program and leave many patients				short-term. The healthcare community is at odds
without access to a physician (H.R. 863 IH, 2007)."				with current reimbursements models and believes
These cuts will have a significant impact on				that further cuts will significantly erode revenues.
physicians and hospitals, and may exacerbate				A study featured in Pain Physician acknowledges
healthcare access barriers to Medicare recipients.				that "physicians in the United States have been
New reimbursement cuts are especially troubling in				affected by significant changes in the pattern[s]
light of evidence that the expansion of Medicare				of medical practice...and escalating healthcare costs
reimbursements to new areas of care can benefit				have focused concerns about the financial
patient health (Gross et al., 2006). The types and				solvency of Medicare (Manchikanti &
amounts of cuts to be made are largely				Giordano, 2007, p.607)." The payment rate cut
dependent on legislation and actions on Capitol Hill.				which was released on July 12th, 2007 includes a
Legislation				9.9% reduction. Many physician practices and
Legislative action on Medicare cuts is ongoing. A				hospitals will be drastically affected but may
recent (February 14th, 2008) amendment was				benefit in the long-run from programs that are
proposed in the House of Representatives to				moderated in growth and can remain solvent.
adjust conversion factors in Part B of title XVIII				Implementation issues
of the Social Security Act, increasing Medicare				Various groups are involved in seeking solutions to
payments for physicians' services through				this problem including the Medicare Payment
December 31, 2009. These adjustments are				Advisory Commission (MedPAC), the Government
temporary fixes in the challenge to create				Accountability Office, physician and hospital
long-term solutions: "The purpose of this Act is to				organizations, economists, and other interest
allow adequate time for Congress to determine				groups. The U.S. Senate and House of
an appropriate long-term solution for Medicare				Representatives are separately working on two
physician reimbursement rates (H.R. 5445 IH,				different ways to alleviate the inconsistencies in
2008)." Legislative fixes are influenced by the				costs and corresponding reimbursements while
various groups that are potentially affected by				trying to establish long term sustainable solutions.
these cuts. Language in these resolutions seems				One of the most significant implementation
to indicate this. A resolution on December 11th,				challenges is the financial fallout to providers
2007 in the House expresses the sentiment "...that				relying on reimbursements (physicians, hospitals,
the Medicare physician payment system must be				and other affected providers). Medicare accounts
immediately reformed in a long-term manner in				for a sizeable portion of revenues to some health
order to stabilize Medicare payment to doctors,				facilities and healthcare providers. Further reducing
return equity to the program, and ensure that				reimbursements for services will have a major
Medicare patients have access to a doctor of				financial impact and the healthcare community has
their choice (H.R. 863 IH, 2007)." Congress is				been especially active in resisting additional cuts.
continuously tuning reimbursement-related				Some of the most vocal groups have been
legislation to slow uncontrolled growth while				providers and their affiliated interest groups. It is
appeasing powerful constituencies and interest				common to find multiple reimbursement-related
groups.				articles in trade journals and specialty magazines.
The executive branch also plays a major roll in				Certain specialties will be impacted more heavily
the determination of alternate Medicare cuts. The				than others and this is reflective in payment
Bush Administration recently proposed a measure				changes by CPT code.
to control the explosive growth in the program.				Impact to Medicare recipients is another major
On February 18th, 2008, "the Bush				implementation issue. Cost-containment may have
administration...submitted a measure to Congress				negative effects on patient access to services
to reduce Medicare spending by increasing				and resulting health outcomes, though this is not
prescription drug plan premiums for higher-income				generalizable across the board. At least one study
beneficiaries and by increasing the use of health				has shown that health outcomes were not
information technology, such as electronic health				impacted for patients receiving treatment in
records, among other provisions (Carey, 2008,				hospitals affected by past reimbursement cuts
p.1)." This move was triggered by a condition of				(Volpp et al, 2005). Counterintuitive results from
the 2003 Medicare law. When a financial warning is				studies like this make implementation even more
issued by Medicare trustees the administration is				intricate and perplexing. Legislation must be
mandated to submit legislation reducing program				drafted based on truly measurable effects to
spending or increasing revenue. "The warning is				recipients, providers, and cost-containment goals.
issued when trustees for two consecutive years				Future direction
predict that federal general fund revenue must be				Medicare reimbursement reduction is a major
used to pay for 45% or more of total Medicare				policy issue affecting large strata of interests.
costs within seven years (Carey, 2008, p.1)."				Within government it is recognized that more
Monies required to pay for Medicare exceed				time is required to generate sustainable strategies.
allotted funds and the program's encroachment on				Balancing long-term objectives with the immediate
other fund sources is closely monitored.				effects of cuts is a delicate matter. Policymakers
Stakeholders				will need to make difficult and calculated decisions
Among the major stakeholders in this issue are				about efforts to reduce healthcare spending.
the federal government, politicians, third-party				Some believe that a greater focus on preventive
payers, Medicare recipients, physicians and				care has the potential to alleviate expenditure
hospitals.				trends. A significant portion of current expenditure
The federal government stands to win by				in Medicare and other programs comes from
moderating uncontrolled growth in the Medicare				long-term maintenance of chronic conditions. This
program. In recent years total expenditure and				trend accounts for a large portion of uncontrolled
federal reimbursement has exceeded target				growth. Medicare reimbursement cuts are merely
rates. "By the 2000-2004 period, society was				stop-loss strategies in a losing equation rather
willing to devote over 20 percent of the				than robust long-term solutions. A greater focus
cumulative increase in GDP and the cumulative				on preventive care has the potential to extend
increase in Federal outlays towards health care				the viability of U.S. healthcare systems.

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Medicare Reimbursement Cuts - A Policy Perspective