Medicare Pay Cut in 2007 Still Could Be Avoided

Congress still has time to avert a 5.1 percent reduction in what Medicare plans to pay physicians as of Jan. 1, 2007. But legislators need to get on the ball to make that happen, says one AAFP leader.

The proposed pay cut could have some dire consequences, according to AAFP President Larry Fields, M.D., of Ashland, Ky. "We can't live with this cut or even the threat of a cut," Fields said. It's difficult for family physicians to plan for the future when they are unsure of their income. It also is hard on patients, who live with uncertainty about whether their physicians will leave the program, he added.

"Congress needs to wake up and fix this," said Fields.

At this point, only lawmakers can avert the cut, which is based on the sustainable growth rate formula that was mandated by the Balanced Budget Act of 1997 and that, in effect, reduces physician payment as use of their services grow from year to year.

"We need to get out of the vicious circle of rapid growth in utilization and spending, and falling real payment rates," Mark McClellan, M.D., Ph.D., administrator of CMS, said in a statement. "Physician groups have been working hard to identify better ways to pay -- ways that help them provide higher-quality care without increasing overall health care costs."

As part of that effort, CMS recently passed rules that will boost pay for providing evaluation and management services. However, CMS' action will not offset the loss of income from the impending cut, said Fields.

According to government projections, Medicare will pay out approximately $61.5 billion to 875,000 physicians and other health care professionals in 2007. That amount is based on what is expected to be the continued growth in use of physicians' services, but it reflects a lower-than-expected rise in medical inflation as calculated by the Medicare economic index.

The MEI is a measure of inflation in physicians' practice costs and wages. It includes the cost of the physician's time as well as nonphysician employees' compensation, rent or lease amounts, medical equipment prices, and other office costs. The MEI takes into account year-to-year changes in these various expenses.

"The 2007 MEI is now estimated to be 0.5 percentage points lower than the estimate contained in the president's budget. The lower MEI estimate translates into a lower update, and, as a result, the latest estimate for the physician update for 2007 is negative 5.1 percent," according to a CMS fact sheet.

The proposed rule that includes the pay cut will be published in the August 22 Federal Register.