Statement attributable to:
Warren A. Jones, M.D.
President, AAFP
AAFP Statement: Warren Jones, M.D. Addresses House of Representatives Small Business Committee
FOR IMMEDIATE RELEASE
Wednesday, April 10, 2002
Contact:
Leslie Champlin
American Academy of Family Physicians
(800) 274-2237, Ext. 5224
lchampli@aafp.org
Mr. Chairman, Representative Christian-Christensen, and members of this Committee, thank you for this extraordinary opportunity to comment on how the small medical practices across the country, especially those of primary care family doctors, are affected by the precipitous decline in the Medicare reimbursement to physicians. We particularly appreciate your interest in CMS's implementation of the Medicare physician fee update as it relates to the Regulatory Flexibility Act. We would suggest that the solution to the problems created by the flawed formula that determines this update is enactment of the recommendations of the Medicare Payment Advisory Commission.
American Academy of Family Physicians
Let me first explain whom I represent. Founded in 1947, the American Academy of Family Physicians, which is the only medical specialty society devoted solely to primary care, is made up of more than 93,500 family physicians, family practice residents and medical students nationwide. We provide comprehensive, coordinated and continuing care to all members of the family and serve as the patient's advocate in the changing health care system. We are proud to include three Members of Congress, including the distinguished Representative from the Virgin Islands.
Mr. Chairman, for the purposes of this Committee it is important to point out that most of the members of AAFP practice in small groups and can be characterized as small businesses. Moreover, a recent study demonstrated that the presence of a family physician in a rural community is a substantial economic stimulus. That study by the Center for Health Policy Research of the Oklahoma State University Health Sciences Center found that, "on average, each family physician * will generate (both direct and secondary) an estimated 50 full-time jobs and these jobs will generate over $1.1 million of income annually."
Medicare Physician Fee Update
Mr. Chairman and Members of the Committee, physicians and other health practitioners have experienced a sharp, 5.4-percent across-the-board reduction in their Medicare payments as of January 1. Although it is called the "Physician Fee Update," these cuts apply to all services and to more than one million health professionals, including therapists, advanced practice nurses, chiropractors and optometrists. Many of these providers practicing in their offices and clinics function as small businesses.
The Medicare Payment Advisory Commission (MedPAC) has called for the elimination of the current update formula and warned that cuts of the magnitude expected under this formula could raise concerns about the adequacy of payments and beneficiary access to care. According to The Milwaukee Journal Sentinel (2/2/2002), the Administrator of the Centers for Medicare and Medicaid Services (CMS), Thomas A. Scully, admitted that the formula that produced the reduction is "screwed up and exceedingly harsh," and requires a Congressional fix. AAFP agrees with that assessment and joins in urging Congress to take immediate steps to "freeze and revise." That is, immediately freeze the conversion factor (payment rate) at the 2001 level and work to revise the update formula as recommended by MedPAC.
The Preserving Patient Access to Physicians Act (HR 3882), sponsored by Rep. Nancy Johnson, would do just that. It would codify the recommendations put forth by MedPAC by repealing the formula, which is based on the Gross Domestic Product (GDP), and replacing it with one that is more equitable and sensible. MedPAC recognizes, as does the AAFP, that there is no rational connection between the health care needs of the elderly and the nation's economic performance, as reflected in the GDP. If anything, in stressful economic times and circumstances, the health care needs of the elderly are exacerbated. Historical events including those following the terrorist attacks of last fall have demonstrated this. The American Academy of Family Physicians urges the Congress to take swift positive action on HR 3882, which would tie the reimbursement rate to the cost of healthcare rather than to national economic conditions. AAFP requests that each member of this committee cosponsor this important legislation.
Currently, Medicare officials are required to use a statutory formula to calculate physician conversion factor updates. The update formula, known as the sustainable growth rate (SGR), ties Part B spending to business cycles rather than patient needs or health services use. Despite 1999 legislation that attempted to reduce the volatility of formula updates, large and unpredictable payment swings with potential cuts of more than 5 percent a year still occur.
The cut experienced this year makes the fourth time in 11 years that Medicare physician payment rates have been reduced. During that time, physicians and other practitioners have been inundated with expensive new government regulations requiring physicians to provide interpreters, dedicate staff to documenting and monitoring compliance plans, and supply unnecessary and duplicative documentation. Yet, Medicare payments during the same 11 years have risen by an average of just 1.1 percent a year or 13 percent less than practice costs as measured by the government's own statisticians. And for the sake of comparison, it is instructive to note that during the same time, the Social Security Cost of Living Adjustment (COLA) increased by an average of 3.0 percent every year.
While Medicare reduced payments to health care providers by 5.4 percent this year, the government estimates that under the same formula, Medicare fees paid for each medical service will be reduced in each of the next three years, for a total decrease of 17 percent from 2002 to 2005. Under this estimate, payment rates in 2005 will be lower than the rate by which physicians and other providers were paid in 1993.
The Effects of the Flawed Formula on Small Practices
The gap between cost inflation and Medicare's payment updates is already starting to take its toll and a negative update could greatly exacerbate the situation. In the last year or so, access problems have been reported in Atlanta, Phoenix, Albuquerque, Annapolis, Denver, Austin, Spokane, northern California and Idaho. AAFP data from last year reveal that 17 percent of family physicians who responded to our practice survey are not accepting new Medicare fee-for-service patients. As Dr. Conrad Flick, vice president of the North Carolina Academy of Family Physicians, noted, "You figure out pretty quickly that if all you take is Medicare, you're going to lose money, and businesses can't afford to lose money" (The Raleigh News & Observer, 2/15/2002).
The effect of this sudden and drastic reduction in Medicare reimbursement rates is not isolated to Medicare patients. After all, most states peg Medicaid payments to Medicare rates, and many insurance companies incorporate Medicare's rates, as well.
Perhaps the most striking example of what this payment rate cut means is provided by the experience of Dr. Baretta Casey, which was described in the February issue of FP Report:
American Academy of Family Physicians
Let me first explain whom I represent. Founded in 1947, the American Academy of Family Physicians, which is the only medical specialty society devoted solely to primary care, is made up of more than 93,500 family physicians, family practice residents and medical students nationwide. We provide comprehensive, coordinated and continuing care to all members of the family and serve as the patient's advocate in the changing health care system. We are proud to include three Members of Congress, including the distinguished Representative from the Virgin Islands.
Mr. Chairman, for the purposes of this Committee it is important to point out that most of the members of AAFP practice in small groups and can be characterized as small businesses. Moreover, a recent study demonstrated that the presence of a family physician in a rural community is a substantial economic stimulus. That study by the Center for Health Policy Research of the Oklahoma State University Health Sciences Center found that, "on average, each family physician * will generate (both direct and secondary) an estimated 50 full-time jobs and these jobs will generate over $1.1 million of income annually."
Medicare Physician Fee Update
Mr. Chairman and Members of the Committee, physicians and other health practitioners have experienced a sharp, 5.4-percent across-the-board reduction in their Medicare payments as of January 1. Although it is called the "Physician Fee Update," these cuts apply to all services and to more than one million health professionals, including therapists, advanced practice nurses, chiropractors and optometrists. Many of these providers practicing in their offices and clinics function as small businesses.
The Medicare Payment Advisory Commission (MedPAC) has called for the elimination of the current update formula and warned that cuts of the magnitude expected under this formula could raise concerns about the adequacy of payments and beneficiary access to care. According to The Milwaukee Journal Sentinel (2/2/2002), the Administrator of the Centers for Medicare and Medicaid Services (CMS), Thomas A. Scully, admitted that the formula that produced the reduction is "screwed up and exceedingly harsh," and requires a Congressional fix. AAFP agrees with that assessment and joins in urging Congress to take immediate steps to "freeze and revise." That is, immediately freeze the conversion factor (payment rate) at the 2001 level and work to revise the update formula as recommended by MedPAC.
The Preserving Patient Access to Physicians Act (HR 3882), sponsored by Rep. Nancy Johnson, would do just that. It would codify the recommendations put forth by MedPAC by repealing the formula, which is based on the Gross Domestic Product (GDP), and replacing it with one that is more equitable and sensible. MedPAC recognizes, as does the AAFP, that there is no rational connection between the health care needs of the elderly and the nation's economic performance, as reflected in the GDP. If anything, in stressful economic times and circumstances, the health care needs of the elderly are exacerbated. Historical events including those following the terrorist attacks of last fall have demonstrated this. The American Academy of Family Physicians urges the Congress to take swift positive action on HR 3882, which would tie the reimbursement rate to the cost of healthcare rather than to national economic conditions. AAFP requests that each member of this committee cosponsor this important legislation.
Currently, Medicare officials are required to use a statutory formula to calculate physician conversion factor updates. The update formula, known as the sustainable growth rate (SGR), ties Part B spending to business cycles rather than patient needs or health services use. Despite 1999 legislation that attempted to reduce the volatility of formula updates, large and unpredictable payment swings with potential cuts of more than 5 percent a year still occur.
The cut experienced this year makes the fourth time in 11 years that Medicare physician payment rates have been reduced. During that time, physicians and other practitioners have been inundated with expensive new government regulations requiring physicians to provide interpreters, dedicate staff to documenting and monitoring compliance plans, and supply unnecessary and duplicative documentation. Yet, Medicare payments during the same 11 years have risen by an average of just 1.1 percent a year or 13 percent less than practice costs as measured by the government's own statisticians. And for the sake of comparison, it is instructive to note that during the same time, the Social Security Cost of Living Adjustment (COLA) increased by an average of 3.0 percent every year.
While Medicare reduced payments to health care providers by 5.4 percent this year, the government estimates that under the same formula, Medicare fees paid for each medical service will be reduced in each of the next three years, for a total decrease of 17 percent from 2002 to 2005. Under this estimate, payment rates in 2005 will be lower than the rate by which physicians and other providers were paid in 1993.
The Effects of the Flawed Formula on Small Practices
The gap between cost inflation and Medicare's payment updates is already starting to take its toll and a negative update could greatly exacerbate the situation. In the last year or so, access problems have been reported in Atlanta, Phoenix, Albuquerque, Annapolis, Denver, Austin, Spokane, northern California and Idaho. AAFP data from last year reveal that 17 percent of family physicians who responded to our practice survey are not accepting new Medicare fee-for-service patients. As Dr. Conrad Flick, vice president of the North Carolina Academy of Family Physicians, noted, "You figure out pretty quickly that if all you take is Medicare, you're going to lose money, and businesses can't afford to lose money" (The Raleigh News & Observer, 2/15/2002).
The effect of this sudden and drastic reduction in Medicare reimbursement rates is not isolated to Medicare patients. After all, most states peg Medicaid payments to Medicare rates, and many insurance companies incorporate Medicare's rates, as well.
Perhaps the most striking example of what this payment rate cut means is provided by the experience of Dr. Baretta Casey, which was described in the February issue of FP Report:
Dr. Casey has done what the government wants many physicians to do: set up practice in an underserved area, taking care of many patients on Medicare and Medicaid. She came to medicine later in life than many do, as a wife with two children -- three by the time she graduated. She wanted to become a family doctor and practice in her Appalachian hometown of Pikeville, Kentucky.
Her business background stood her in good stead. She bought an office building at an auction, rented out the top floor to offset the cost of her first-floor office, computerized her practice from the start and opened her doors as a solo practitioner eight years ago.
Thanks to the booming practice and conservative living, Casey significantly paid down her $145,000 in student loans her first full year. But that was as good as it got. Ensuing years didn't get better. In fact, they got worse.
On her computer Dr. Casey watched while medical expenses continued to grow but payment rates failed to keep pace. Dr. Casey says: "As a solo practitioner, I pay for everything. And the increase in expenses hasn't been the measly little percentage you hear forecasted by the government. I've tracked it on my computer. It has gone up 10 to 15 percent every year."
"It took about six years, but at the six-year mark, expenses and income literally met in the middle," she says. "This past year, they crossed over. And now, I have to dip into my savings to cover the extra expense. I'm basically subsidizing my own practice out of a savings account."
And now, in 2002, the worst blow of all -- the 5.4 percent cut in the Medicare conversion factor. "I've had to make some decisions," Dr. Casey says. "I won't take any new Medicare patients or any new patients with any insurance company that follows suit and drops payment." And ultimately, she says, "If things don't change, I probably couldn't stay in practice any more than two more years."
Dr. Casey has a message for Washington:
"If our reimbursement rates continue to go down and our expenses continue to go up," she says, "you will see an exodus of physicians out of rural areas like Moses out of Egypt. It's not because doctors don't care about their patients. They do, tremendously."
"It's because nobody is going to continue in a field or in a business when they're losing 10 to 15 percent per year. The practice of medicine is like any other business: If you can't pay your bills, you can't survive."
Her business background stood her in good stead. She bought an office building at an auction, rented out the top floor to offset the cost of her first-floor office, computerized her practice from the start and opened her doors as a solo practitioner eight years ago.
Thanks to the booming practice and conservative living, Casey significantly paid down her $145,000 in student loans her first full year. But that was as good as it got. Ensuing years didn't get better. In fact, they got worse.
On her computer Dr. Casey watched while medical expenses continued to grow but payment rates failed to keep pace. Dr. Casey says: "As a solo practitioner, I pay for everything. And the increase in expenses hasn't been the measly little percentage you hear forecasted by the government. I've tracked it on my computer. It has gone up 10 to 15 percent every year."
"It took about six years, but at the six-year mark, expenses and income literally met in the middle," she says. "This past year, they crossed over. And now, I have to dip into my savings to cover the extra expense. I'm basically subsidizing my own practice out of a savings account."
And now, in 2002, the worst blow of all -- the 5.4 percent cut in the Medicare conversion factor. "I've had to make some decisions," Dr. Casey says. "I won't take any new Medicare patients or any new patients with any insurance company that follows suit and drops payment." And ultimately, she says, "If things don't change, I probably couldn't stay in practice any more than two more years."
Dr. Casey has a message for Washington:
"If our reimbursement rates continue to go down and our expenses continue to go up," she says, "you will see an exodus of physicians out of rural areas like Moses out of Egypt. It's not because doctors don't care about their patients. They do, tremendously."
"It's because nobody is going to continue in a field or in a business when they're losing 10 to 15 percent per year. The practice of medicine is like any other business: If you can't pay your bills, you can't survive."
Since this story was published, Dr. Casey, whose practice is 60 percent Medicare patients, reports that she has had to reduce one of her four employees from full time to part time. If Dr. Casey has to close her uneconomical practice, her departure will deeply affect her little town, which is in what the Health Research and Services Administration has defined as a "Health Professional Shortage Area." In other words, Dr. Casey is struggling to provide health care in a county that needs at least 15 more primary care physicians just to reach a minimally acceptable level of service. Without her, Medicare patients--in fact, everyone--in eastern Kentucky will find it even more difficult to find a physician or any other health care professional.
In a March 17 New York Times article by Robert Pear, entitled "Doctors Shunning Patients with Medicare," Dr. Mark H. Krotowski, a family doctor in a working-class neighborhood of Brooklyn, said: "My expenses go up and up and up every year. For the government to lower what it pays me when my expenses are rising - that doesn't make sense. It's an insult."
Dr. Krotowski said that about 25 percent of his current patients were on Medicare, but that he was not taking any new Medicare patients. "I love my elderly patients," Dr. Krotowski said. "But they are very sick. They need a lot of attention, a lot of medications and a lot of time. Medicare reimbursement has not kept up with inflation or the cost of providing care to the elderly."
In the same article, Dr. Stephen C. Albrecht, who practices with three other doctors in Olympia, Washington, said he stopped taking new Medicare patients about six months ago. "It impedes the economic viability of my practice to have a large Medicare population," Dr. Albrecht said. "When you own and run a small business, you have to make sure it's economically viable."
Dr. Deborah G. Haynes, a family physician in Wichita, Kansas, was quoted in the same article as saying that her seven-doctor group decided three months ago not to take new Medicare patients. "We hated to do it," Dr. Haynes said, "but we have a responsibility to pay our staff."
In addition, Dr. Conrad L. Flick, of Raleigh, North Carolina, said: "We don't take new Medicare patients. We want to, but as a business, we really can't afford to." In the past, Dr. Flick said, "private insurers used to subsidize our Medicare practice," but they are no longer willing to do so. "Private insurers have cut back their reimbursement, so there's less opportunity to use those payments to cover the losses on Medicare patients," he said.
Experience has already shown the danger of unrealistic payment rates in Medicaid, where twenty years of studies have consistently concluded that fee levels affect both access and outcomes. Medicare is not immune from similar problems as has been made abundantly clear by the continued exodus of Medicare+Choice plans from the program despite a guaranteed pay increase of at least 2 percent a year. About 85 percent of elderly and disabled Americans rely on fee-for-service Medicare. For these Americans, whose numbers are growing, there is no other option available.
Mr. Chairman, I am here today to deliver the message that the American Academy of Family Physicians strongly urges Congress to act now to immediately freeze this year's conversion factor at last year's rate. In addition, we urge Congress to act on and pass HR 3882, which would repeal the SGR and replace it with a more equitable and sensible formula, as MedPAC recommended. This bill also would increase the conversion factor for next year by a modest 2.5 percent. Your action will ensure that the small practices for which many physicians work can continue to provide Medicare patients, especially in underserved areas, with the care they depend on and deserve.
Thank you for the opportunity to speak with you and the members of this committee.
In a March 17 New York Times article by Robert Pear, entitled "Doctors Shunning Patients with Medicare," Dr. Mark H. Krotowski, a family doctor in a working-class neighborhood of Brooklyn, said: "My expenses go up and up and up every year. For the government to lower what it pays me when my expenses are rising - that doesn't make sense. It's an insult."
Dr. Krotowski said that about 25 percent of his current patients were on Medicare, but that he was not taking any new Medicare patients. "I love my elderly patients," Dr. Krotowski said. "But they are very sick. They need a lot of attention, a lot of medications and a lot of time. Medicare reimbursement has not kept up with inflation or the cost of providing care to the elderly."
In the same article, Dr. Stephen C. Albrecht, who practices with three other doctors in Olympia, Washington, said he stopped taking new Medicare patients about six months ago. "It impedes the economic viability of my practice to have a large Medicare population," Dr. Albrecht said. "When you own and run a small business, you have to make sure it's economically viable."
Dr. Deborah G. Haynes, a family physician in Wichita, Kansas, was quoted in the same article as saying that her seven-doctor group decided three months ago not to take new Medicare patients. "We hated to do it," Dr. Haynes said, "but we have a responsibility to pay our staff."
In addition, Dr. Conrad L. Flick, of Raleigh, North Carolina, said: "We don't take new Medicare patients. We want to, but as a business, we really can't afford to." In the past, Dr. Flick said, "private insurers used to subsidize our Medicare practice," but they are no longer willing to do so. "Private insurers have cut back their reimbursement, so there's less opportunity to use those payments to cover the losses on Medicare patients," he said.
Experience has already shown the danger of unrealistic payment rates in Medicaid, where twenty years of studies have consistently concluded that fee levels affect both access and outcomes. Medicare is not immune from similar problems as has been made abundantly clear by the continued exodus of Medicare+Choice plans from the program despite a guaranteed pay increase of at least 2 percent a year. About 85 percent of elderly and disabled Americans rely on fee-for-service Medicare. For these Americans, whose numbers are growing, there is no other option available.
Mr. Chairman, I am here today to deliver the message that the American Academy of Family Physicians strongly urges Congress to act now to immediately freeze this year's conversion factor at last year's rate. In addition, we urge Congress to act on and pass HR 3882, which would repeal the SGR and replace it with a more equitable and sensible formula, as MedPAC recommended. This bill also would increase the conversion factor for next year by a modest 2.5 percent. Your action will ensure that the small practices for which many physicians work can continue to provide Medicare patients, especially in underserved areas, with the care they depend on and deserve.
Thank you for the opportunity to speak with you and the members of this committee.
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Founded in 1947, the AAFP represents 110,600 physicians and medical students nationwide. It is the only medical society devoted solely to primary care.
Approximately one in four of all office visits are made to family physicians. That is 240 million office visits each year — nearly 87 million more than the next largest medical specialty. Today, family physicians provide more care for America’s underserved and rural populations than any other medical specialty. Family medicine’s cornerstone is an ongoing, personal patient-physician relationship focused on integrated care.
To learn more about the specialty of family medicine, the AAFP's positions on issues and clinical care, and for downloadable multi-media highlighting family medicine, visit www.aafp.org/media. For information about health care, health conditions and wellness, please visit the AAFP’s award-winning consumer website, www.FamilyDoctor.org.
