Physician pay cuts

How would you like to have your pay reduced 27.4%.  I’m guessing you would not like it at all but physicians who recieve payments from Medicare face a 27.4% pay cut in the next 45 days if Congress doesn’t do something to stop it from happening.

There’s this thing called the sustainable growth rate and it’s used to determine physician payments under Medicare.  The sustainable growth rate first came into use with the Balanced Budget Act of 1997 and from 1998 to 2002 the formula was followed and used to provide payment increases to physicians.  The purpose of the program was to restrain the growth of Medicare spending on physician services.  In 2002 Congress overrode the formula and costs of physician payments exceeded budget and it’s been a mess ever since.

For the past 9 years Congress has extended the sustainable growth rate a year at a time but never created a plan to correct the problem and the formula was set to expire at the end of 2011 but just in the nick of time Congress extended the physician fee schedule for two months. 

Physician’s now face a 27.4 percent reduction in Medicare payments if something isn’t done by March 1, 2012.  By ignoring the problem for the past 9 years, Congress has created a problem that has no good or easy solution.  Instead of addressing the problem head on in the past Congress has elected to “punt” year after year and put a solution off one year at a time.

Because the sustainable growth rate is so far out of balance due to 9 years and two months worth of extensions the formula needs to be scrapped and a new payment formula needs to be created.  Does anyone have faith that Congress can solve even a simple problem in the next two months let alone a complex problem like physician pay…

It appears that Congress may choose to “freeze” physician payments at the current level for the next year and it’s estimated that this will cost around $20 billion.  An important thing to remember in this process is that the Congressional Budget for Medicare spending is set on the original sustainable growth rate formula, not actual spending so the additional $20 billion in cost will need to come from somewhere.

One longer term fix proposal is to replace the sustainable growth rate with the Medicare Economic Index or MEI.  The MEI limits annual physician fee increases to those regarding the costs of producing physician services, such as obtaining medical supplies, and increases in general earnings levels. 

There are two problems with the MEI.  First, it is estimated that it will cost $300 billion to replace the sustainable growth rate.  Health care spending has been slashed and further cuts are ahead as health care reform is implemented over the next few years.  Where will congress find another $300 billion to cut – my guess – it will come at the expense of hospitals.  Second, health care reform increases the number of Medicaid recipients and many physicians will be seeing more Medicaid recipients.  Medicaid pays physicians considerably less than Medicare and substantially less than commercial insurance.  Reducing Medicare payments to physicians and asking them to see more Medicaid patients will materially decrease physician earning potential. 

Physicians have a difficult job and they are some of the brightest and most talented people in our society.  Physicians risk being sued for every decision they make and they have a lifestyle that requires them to devote their time and energy to their occupation at the expense of their personal and family life.  Now don’t get me wrong, I’m not asking you to feel sorry for physicians, we all choose our paths in life and thankfully for all of us compassionate, intelligent people choose to become physicians. 

My fear, and a fear that is real, is that reductions to physician pay may deter the right kind of people from becoming a physician.  Across the health care industry we have seen reductions in talented individuals pursuing health care careers because they have the potential to earn similar or greater salaries and have far fewer headaches in other occupations.

Physicians do great work every day and they have a great deal of influence so I do not believe Congress will make a move to materially decrease physician payments from Medicare.  There are no easy answers when it comes to fixing Medicare and the sustainable growth rate is one more mole hill that’s turned into a mountain because no one in Congress was brave enough to try to slay the dragon.  I’ll keep you updated as the situation unfolds, we’ll know a lot more in the coming months.

About Craig Thompson

I am a young professional with two great sons, and I work in the healthcare setting. I am employed in hospital administration and serve as Chief Operating Officer at Golden Valley Memorial Healthcare in Clinton, Missouri. These are challenging and exciting times in healthcare and my blog will focus on healthcare, raising boys or being raised by boys, and living in mid America.
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