Increase in Medicare Payments to Physicians This Year Will Raise Beneficiaries’ Part B Premiums More Than Expected Next Year, Officials Say

Monthly premiums for Medicare Part B will rise to an estimated 14% to $89.20 in 2006, largely because of an unexpected 15% increase in spending on physician visits and other outpatient services in 2004, CMS said in a letter on Thursday to the Medicare Payment Advisory Commission, the Washington Post reports (Connolly, Washington Post, 4/1). Monthly Medicare premiums rose 17% this year to $78.20. Medicare trustees in their annual report
released last week estimated that the premium would rise 12.1% in 2006 to $87.70 per month. However, spending on Medicare Part B, which had been forecasted to increase 12% in 2004, actually rose about 15%, prompting CMS to revise its premium forecast upward by $1.50 to $89.20 (Appleby, USA Today, 4/1). Because monthly Medicare premiums are set each year to cover 25% of the projected cost of Medicare Part B, when spending for that part of the program increases, premiums also increase. Medicare chief actuary Richard Foster said that Medicare payments to doctors and other health care professionals increased from $76.7 billion in 2003 to $88.3 billion in 2004 (Pear, New York Times, 4/1). CMS had "expected significant growth" in Medicare Part B spending and "got more than that," he added (Pugh, Philadelphia Inquirer, 4/1). Medicare officials attributed the higher spending level to longer office visits; more services provided, such as physical therapy; a large increase in the use of diagnostic scans; an increase in laboratory tests; and higher use of prescription drugs that are administered in a doctor's office. Enrollment growth and a 1.5% increase in Medicare reimbursements to physicians were not considered significant factors in the overall increase in spending, USA Today reports (USA Today, 4/1).

Medicare Officials' Comments
In the letter to MedPAC, Center for Medicare Management Director Herb Kuhn said, "Continued rapid spending growth strains both beneficiaries' incomes and the federal budget" (CQ HealthBeat, 3/31). CMS Administrator Mark McClellan expressed "great concern" about the significant increase in Medicare Part B spending (New York Times, 4/1). He said, "We've got a big discrepancy now between spending in recent years for physician services and what the law envisioned as sustainable" (Philadelphia Inquirer, 4/1). He noted, "This is a strain over time for beneficiaries' budgets and for the Medicare budget" (Alonso-Zaldivar, Los Angeles Times, 4/1). McClellan said CMS is "looking into it closely to find out exactly why Part B costs have gone up so much" (USA Today, 4/1). He noted, "There's no question many of these things can help prevent complications of serious chronic diseases and keep patients out of the hospital" (Washington Post, 4/1). However, he added that CMS needs to "get a better understanding of which are related to improvements in care and which are more questionable" (USA Today, 4/1). MedPAC Chair Glenn Hackbarth said that some increases in service volume can be good, "but some are not so good" (Washington Post, 4/1). McClellan said that Medicare will be monitoring doctors' billings to determine who provides many more services than their peers (Los Angeles Times, 4/1). McClellan also said that the adjustments to premium estimates are preliminary and could change as more detailed spending data are released (Philadelphia Inquirer, 4/1).

AMA Reaction
According to the Los Angeles Times, the American Medical Association "reacted sharply" to McClellan's comments, attributing the increase in Part B spending in part to a greater number of services provided under Medicare last year (Los Angeles Times, 4/1). AMA Board Chair James Rohack said, "It's not surprising that the volume of physician services has gone up. We're providing better care" (New York Times, 4/1). He added, "Conditions that once required hospitalization now are routinely treated in physicians' offices at a lower cost to the governments and patients. Medicare should recognize and reward these advances rather than penalize physicians for these important improvements in patient care" (USA Today, 4/1). Rohack said, "Americans are living longer than ever, more are entering Medicare and chronic disease continues to increase, which naturally leads to an increased need for physician services" (Lueck, Wall Street Journal, 4/1).

Lawmakers' Reaction
Senate Finance Committee Chair Chuck Grassley (R-Iowa) said Congress should review the additional services being ordered by physicians, noting, "It'll be important to understand which services contribute to health improvements and which are more questionable. To that end, physicians and other interested parties should be included in these discussions" (Freking, AP/Las Vegas Sun, 4/1). He added, "We need to find a physician-payment system that works. Until then, it'll be increasingly difficult to find the resources needed for a long-term fix if spending related to the physician fee schedule continues to increase." Rep. John Dingell (D-Mich.) said the data show "an 8.5% increase in payments to HMOs while the physicians get a 4.3% decrease in payments -- evidence that our priorities are upside down." He added, "The physicians lose money, while beneficiaries pay more. And the doctor-patient relationship will go the way of the dodo bird as HMOs ... grab more and more of Medicare" (CQ HealthBeat, 3/31).

Other Reaction
Tricia Neuman, a Kaiser Family Foundation vice president and director of its Medicare Policy Project, said, "For seniors, it could be quite an eye-opener" (Los Angeles Times, 4/1). John Rother, policy director for AARP, said, "People's Social Security checks are basically being eaten away by these medical costs" (Philadelphia Inquirer, 4/1). Paul Fronstin, a director at the Employee Benefit Research Institute, said, "It's hard to argue that what doctors are doing is unnecessary. Why shouldn't they be doing more echocardiograms? Maybe they weren't doing enough before." He added that Medicare payments to physicians are likely to increase when the new Medicare prescription drug benefit takes effect in 2006 because "[p]atients are going to have to go see their doctors in order to get refills. Once the refill runs out, the doctor is going to want to see the patient" (Los Angeles Times, 4/1).

Effect on Physician Payments
According to USA Today, the "higher-than-expected" spending on physician services "might hamper physician efforts to win a pay increase instead of a cut from Medicare next year" (USA Today, 4/1). Physicians are scheduled to receive a 4.3% reduction in Medicare fees in 2006. On Thursday, CMS said the reduction would take place as scheduled unless Congress acts to prevent those cuts, as it did this year (New York Times, 4/1). McClellan said, "There's no question the higher spending levels we're seeing now make it more expensive to impose a legislative change to increase the physician-payment rate. That's why it's so important for us to take steps right now to understand why costs are going up" (Wall Street Journal, 4/1). Rohack warned that the scheduled cuts "present a serious threat to access to care for seniors," noting that physicians might have to make hard choices about taking new Medicare beneficiaries if the cuts went into effect. Without congressional intervention, physicians can expect Medicare fee reductions totaling 26% between 2006 and 2011, Medicare trustees said in their report last week (Philadelphia Inquirer, 4/1).