Doctors

Medicare put on the brink, yet again

March 20, 2014: 5:00 AM ET

Next week, Congress will be racing against the clock to put a band-aid on an automatic measure that will significantly cut what doctors receive for treating Medicare patients.

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FORTUNE -- When Congress returns to session on Monday it will find itself in a familiar position: with its back against the wall.

This time, Congress will be racing against a clock that's ticking off the seconds until the payments that doctors receive in exchange for treating Medicare patients are cut significantly. If it fails to pass legislation to stave off the reduction by March 31, the 685,000 doctors that participate in Medicare will see their reimbursements slashed by 24% starting April 1.

The cut is based on what's known as the sustainable growth rate (SGR) -- a formula that was instituted as part of a 1997 deficit reduction law designed to limit federal health care spending by tying physician pay to an economic growth target. Medicare expenditures triggered an automatic 5% cut for the first time in 2002, but since then, Congress has passed 16 stop-gap measures -- sometimes retroactively -- to kick the cuts that average about 5% a year further down the road. It passed five of these band-aids in 2010 alone.

"These cuts going into place and then being reversed is just an incredibly wasteful, disruptive approach to the really important problem of trying to manage Medicare costs and health care costs in general," says Molly Cooke, president of the American College of Physicians.

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Despite the impending need for an eleventh-hour legislative action, permanently ending the automatic spending cuts has bipartisan support. Physicians and medical industry groups were hoping that this would be the year when they'd see the repeal of the annual reductions based on the SGR formula. Talks looked promising in early February, when lawmakers introduced a bill that would give doctors serving Medicare patients a 0.5% reimbursement increase annually for five years. But that rare bipartisan effort came crashing down when House Republicans decided to pay for the bill -- which will cost $138 billion, according to the Congressional Budget Office -- by delaying Obamacare's individual mandate for five years. With largely Republican support, the House passed a bill linking the two issues on March 14.

The Democrat-controlled Senate is unlikely to take up the bill, and the Obama administration has already said that the President will veto it if it reaches his desk. That means that starting next Monday, Congress has seven days to come up with a new bipartisan solution to keep the 24% cut from going into effect.

Lost in the partisan wrangling and political grandstanding is the fact that repealing the SGR cuts is needed to ensure the health security for elderly Americans and to support the physicians who care for them.

In 2012, 9,500 physicians who had previously accepted Medicare opted out of the system, according to the Centers for Medicare and Medicaid Services. While that's a small portion of the hundreds of thousands of doctors who still participate in the program, the 2012 drop-out rate represents a significant uptick from the 3,700 physicians who left the Medicare system in 2009.

The constant threat of cuts to Medicare reimbursement rates, which already lag behind inflation, is widely believed to be pushing physicians out of the program. And if Medicare payments are slashed by 24% in the coming weeks, even more physicians could drop out.

"Should this [cut] ever happen, the fear is that the natural business tendency is to not be able to maintain your practice," says Reid Blackwelder, president of the American Academy of Family Physicians. The AAFP asked family physicians in 2010 how a 25% cut to reimbursement rates would affect their practices. Just under two-thirds of respondents said they may be forced to stop accepting new Medicare patients; 73% said they would have to limit the number of Medicare appointments they make.

All the while, the number of Americans who qualify for Medicare coverage continues to grow, from 44.1 million in 2007 to 49.4 million in 2012, according to data compiled by The Henry J. Kaiser Family Foundation.

The 24% cut to Medicare payments -- should it go through -- could also put more pressure on the nation's ongoing physician shortage. The American Association of Medical Colleges estimates that the U.S. will face a shortage of 46,000 primary care doctors by 2020, which is equal to one-quarter of all physicians practicing in that category today.

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Medical students are turned off by a career as a primary care physician because of the lower pay. Family doctors earn $185,000 annually on average, compared to the $336,000 that a general surgeon makes or the $266,000 that an OB/GYN brings in, according to physician search firm Merritt Hawkins. Primary care physicians also receive lower reimbursement rates from insurance companies compared to specialists, Cooke says.

"There's a workforce imbalance that's resulted in a shortage that's completely incontrovertible in physicians who are the first point of contact for people -- general internists, pediatricians, family physicians," says Cooke. "Those physicians are the most vulnerable to the kinds of economic disruption that the SGR looming crisis, then patch, then looming crisis, then patch create because they operate on such low margins."

All of this is happening, of course, alongside the implementation of the Affordable Care Act, which emphasizes the role of primary care. A 24% cut to Medicare reimbursement rates could put a major kink in the system. "If, all of the sudden, patients with Medicare stop seeing their family physician because they don't have access, they're going to end up in the ER and in hospitals," Blackwelder says. "That will result in horrible outcomes for patients and increased costs for the health care system."

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