How Will Medicare Reform Impact Providers?

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Paul Keough, TurnKeough | November 18, 2009
Money Health
This report originally appeared in the October 2009 issue of DOTmed Business News

The consequences of the health care reform proposals currently under congressional debate are broad and far-reaching. One's emotions go from sour grapes to elation, page by page, reading the 1,000-plus-page documents. One issue front and center in the minds of providers is how the potential changes to Medicare reimbursements would affect their practices. So, is health care reform all doom and gloom, or is there a silver lining for providers?

First, the Centers for Medicare and Medicaid Services (CMS) must adjust its Sustainable Growth Rate (SGR) formula yearly to take into account not only current cost increases, but also, old debt from previous SGR conversations. Currently, old debt is estimated to amount to over $300 billion. So, unless Congress rules otherwise, the Medicare Physician Fee Schedule in 2010 will drop reimbursements to physicians overall by 21.5%. This cut would be needed simply to get back on track with the old formula.

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Implications of Medicare reimbursement drops would range across medical subspecialties, but statistically the range of decreases in physician fees could fall anywhere from 3% to 26%, with a mean of about 11%, but a median of about 19%. Based on these and other estimates and depending on the patient makeup, some practices may incur cuts as high as 39%.

So, reimbursements will decrease overall, but will that be counterbalanced by the newly covered patients who were previously uninsured? A more widely insured population will grow the volume of exams. Any growth in volume may be counterbalanced anyway as the government scrambles to cut health care costs. One area the government repeatedly targets is medical imaging reimbursement. The latest version of the health care reform bill would set the equipment utilization rate for Medicare reimbursement of imaging studies at 65%, significantly lower than the 90% level proposed in original versions of the legislation. So, will the increase in insured patient volume outweigh decreases in reimbursement?

Suppose some form of health care reform passes, there could be up to several million new insured patients to make up for the roughly 10% drop in reimbursement, but of course, that is not the entire picture. What would the closing of the donut hole imply for costs? How about the implication of a trigger for rationing care?

No doubt, even with bipartisan input, providers will face increasing demands to shift from the current model of fee-for-service payments to a clinical model based upon quality measurements and care coordination. The framework proposes a value-based purchasing program for hospitals starting in 2011. Under this program, a percentage of hospital payments would be tied to hospital performance on quality measures related to common and high-cost conditions. Providers also will be competing on the basis of quality and may experience changes in reimbursement individually, but the total pool of funds does not appear to increase overall for many of the proposed reforms.