Annals of Long Term Care

The “B” in the Medicare Part B program may come to be known as “BIG,” as in big changes; both the physician reimbursement component of Medicare Part B, as well as the coverage of outpatient medications, are undergoing major changes. Medicare Part B, also known as medical insurance, covers physician services. Physician and other providers, such as nurse practitioners, are paid for by Medicare under a fee schedule dictated by Medicare. In addition to physician services, Medicare Part B also covers supplies such as durable medical services and medications provided within a physician office. Because of the increase on demand imposed by aging baby boomers during a time of limited resources and extraordinary innovation, cost-controlling measures are being introduced that directly impact geriatric providers.

MEDICARE PRICING NOW
The system for determining the fee that physicians are reimbursed from Medicare is unlike other markets where the producer sets prices based on the market conditions for its services. Instead, in senior care, Medicare dictates the prices based on a predetermined formula. The current Medicare physician fee schedule bases annual adjustments on the Sustainable Growth Rate (SGR) Formula. This formula ties physician payment updates to a number of factors:

• Growth in input costs
• Growth in fee-for-service enrollment
• Growth in the volume of physician services relative to growth in the national economy

The result of this formula is that the more services utilized for reasons of demand, the less the reimbursement to physicians in subsequent years, in hopes that this will decrease utilization and expenditures. As has been the case for the last several years, Congress has put aside the formula adjustment, instead choosing to follow the Medicare Payment Advisory Commission’s (MedPAC’s) recommendation. MedPAC is tasked with analyzing access to care, quality of care, and other issues affecting Medicare. MedPAC advises Congress on healthcare reimbursement based on careful analysis of two questions: (1) Are current payments adequate? and (2) What cost changes are expected in the coming year?

In the area of practice expense, MedPAC examines changes in economy-wide productivity and input prices such as practice overhead. With regard to adequacy of current payments, MedPAC focuses on access and quality. Access for beneficiaries would ensure that payment levels are such that there are an adequate number of providers for beneficiaries. Access also means access to capital to ensure that practices can be innovative to assure appropriate quality standards through the introduction of electronic health records or ePrescribing, to cite just two examples.

For 2008, providers are already lobbying hard to increase their reimbursement from the current recommendations that MedPAC has made. Those recommendations include a 1.7% increase on physician reimbursement, a 3.1% increase on hospital reimbursement, and a freeze on nursing home reimbursements.

THE FUTURE OF MEDICARE PHYSICIAN REIMBURSEMENT
For 2007, instead of the 5.4% decrease as set forth under the SGR Formula, Congress passed a freeze on Medicare’s annual adjustments. But even more significant with regard to the annual adjustment to the Medicare fee schedule is the introduction of a pay-for-performance (P4P) payment.

A section of the Tax Relief and Health Care Act of 2006, Sec 101 Physician Payment and Quality Improvement, introduced the beginning of P4P initiatives within Medicare. Beginning July 1, 2007, and ending December 31, 2007, providers will receive an additional 1.5% from Medicare for reporting measures identified as 2007 physician quality measures under the Physician Quality Reporting Initiative (PQRI).