Medicare -- The Federal Financial Gorilla

Federal Update

Alex Calcagno
Contact Alex at 
(781) 434-7214 or acalcagno@mms.org

There is no federal funding program that has more impact on the viability of physician practices than Medicare. And as every health policy analyst knows, with an aging population the role of Medicare becomes even more prominent. Did you know that 10,000 new Medicare enrollees enter the system every day? And that twice as many Medicare beneficiaries will enter the system in 2014 as in 2013?

But even this astonishing fact understates the reach of Medicare as a dominant payer in the U.S. health care market. In terms of covered lives, Medicare finances health care for Medicare beneficiaries, members of the military and their families (through Tricare), and persons with disabilities. In terms of its financial clout, the impact of Medicare is further exacerbated by the fact that most private payers follow the Medicare fee schedule.

Yet for more than a decade, the Medicare physician fee schedule has grossly underestimated the real costs of providing care to Medicare beneficiaries. The ubiquitous SGR formula regularly underestimated the cost of care by a sizeable margin calling for double-digit cuts for many years. The impact of this uncertainty on the business of physician’s practices has been undervalued in the policy arena. A group of prominent economists recently commented on what action, or intervention, would have the biggest impact on the U.S. economy. And the answer was not the much-heralded pronouncements of the Federal Reserve, but the recently passed Omnibus Appropriations Bill, which would keep the government funded until September 30, 2014. The reason the economists stated was that the spending bill gave the domestic markets some certainty as to federal spending — something the fall government shutdown and Congressional budget failures had precluded.

If a nation of investors is worried about a stalled national budget, one can only imagine the impact of an annual 25 percent cut to a small medical practice; questions as to whether they can afford to invest in electronic medical records, hire staff, or invest in any of the new medical technologies necessary for up-to-date care of their patients. And while it is true that Congress has stopped the cut each year, there was never any guarantee that the cuts would not go into place.

And here is the other rub, if you will. In fact, physician’s practices have been cut, because in order to stop the draconian cuts required by the SGR formula, there has been no increase in Medicare physician payment rates for well over a decade. To be exact, the cost of running a medical practice has risen by 25 percent nationally over the past 10 years, yet Medicare payments to physicians have clearly not increased at that rate.

This shortfall comes at exactly the time when the costs of running a medical practice are increasing dramatically — think labor, medical technology, costs of new regulation, inflation — coupled with, yes, an aging population.

As Vital Signs goes to press, Congress is working on legislation to eliminate the SGR permanently. The proposed new payment formula looks to include a revised form of fee-for-service with updates that will be based on how physicians meet certain quality and efficiency metrics in their practice/specialty. There would also be different payments for those who practice in medical homes, ACOs, and other alternative payment systems.

Whether the new system will give physicians more certainty is unclear, but if the new methodology is done correctly, physicians should have more control over their financial destiny in Medicare.

—Alex Calcagno
MMS Director of Federal Relations

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