Fate of Medicare Pay Raise Hinges on Contentious SCHIP Negotiations

By David Glendinning, American Medical News

August 2007

Just before leaving Washington for their August break, House lawmakers passed a measure that would prevent Medicare physician pay cuts for the next two years. But final approval is far from certain.

The move is part of legislation to reauthorize and expand the State Children's Health Insurance Program. The Children's Health and Medicare Protection Act of 2007, passed by the House on Aug. 1, would turn the 9.9% and 5% Medicare payment reductions expected in 2008 and 2009 into 0.5% increases for each year.

The next day the Senate passed the Children's Health Insurance Program Reauthorization Act of 2007, which would renew and boost SCHIP but not change Medicare physician pay.

When Congress reconvenes in September, a conference committee will try to craft a compromise between the two substantially different bills. Because SCHIP will expire Sept. 30 without congressional intervention, lawmakers are under a tight timetable.

"America 's doctors urge Congress to expedite the conference process," said American Medical Association Board of Trustees Chair Edward L. Langston, MD. "Working together, we are confident that members of Congress from both chambers and both sides of the aisle can find common ground so that children and seniors will continue to have access to needed health care services."

But survival of the Medicare physician piece in the House legislation is not a sure thing, say Senate leadership aides. Key Republican senators are seeking assurances that the conference committee will not broaden the scope of the Senate measure in crafting a final bill. If negotiators agree, this would necessitate jettisoning the physician pay boost and other Medicare provisions in the House bill and trying to pass them separately.

Senate Finance Committee Chair Max Baucus (D, Mont.), who was instrumental in hammering out a bipartisan compromise on the SCHIP bill, has said he would prefer to address the Medicare issues separately.

Other major stumbling blocks are the veto threats that President Bush issued against both measures. He argued that they would usher in too large an expansion of government-run health care. The Senate bill passed by a vote of 68-31 -- enough to override a presidential veto if all of the measure's supporters remain on board. But the House bill passed only by a largely party-line vote of 225-204, not a veto-proof margin.

Senate Republicans have voiced concern about the size of the House bill's SCHIP expansion and the inclusion of the Medicare provisions. While none have publicly come out against doctor pay relief, several have blasted the proposed elimination of Medicare subsidies to private health plans. The House bill includes this provision as a way to provide some of the additional dollars for physicians.

Supporters of the House Medicare provisions, including the AMA and AARP, have counted on the popularity of SCHIP to help give the Medicare priorities some momentum on Capitol Hill. But the Senate bill may very well lose its veto-proof majority if the conference committee starts heading in the direction laid out by the House bill, said Senate Minority Whip Trent Lott (R, Miss.).

Some lawmakers are predicting that the substantial gulf between the two bills could force Congress to take interim action to protect SCHIP beyond the end of September while it battles over the rest of the details. "We may end up having to pass a short-term extension of current law for a few months before work is finished on reauthorization," said Senate Finance Committee Ranking Republican Charles Grassley (Iowa).

Other Medicare enhancements

Medicare physician payment increases in 2008 and 2009 are not the only Medicare provisions in the House bill that would affect doctors.

The measure aims to improve spending targets that are written into the payment formula by establishing separate conversion factors for different types of physician services, such as preventive care and imaging.

Spending on doctor-administered medicines would be removed from the formula, and expenditure targets would account for the increased spending associated with Medicare coverage expansions -- two moves favored by the AMA that the Centers for Medicare & Medicaid Services has not adopted administratively.

The legislation would eliminate a $1.35 billion physician payment and quality improvement fund established by Congress last year and use the money to help prevent the next two years of cuts. CMS recently said it would tap that fund to pay for quality bonuses for physicians participating in a voluntary reporting program, rather than to reduce the size of the pay reductions for all doctors.

The legislation also would extend for another two years a number of rural health provisions set to expire. These include a floor on geographic adjustments to the relative value of physician services, as well as incentive payments for physicians who work in underserved areas.

In addition, the House bill offers a large-scale demonstration of Medicare payment for care coordination through the patient-centered "medical home" model. This pilot project is strongly supported by the American College of Physicians, said ACP President David C. Dale, MD.

Another proposed change could threaten specialty hospitals and other health facilities that have a large degree of physician ownership. A provision in the House bill would prevent physicians from referring Medicare patients to such facilities if they are more than 40% physician-owned or if any one doctor has more than a 2% share. The resulting loss of Medicare income could force some specialty hospitals to close their doors.

"The AMA continues to support physician-owned hospitals as one way to provide patients with high-quality care, and we are concerned about restrictions on them in the legislation," Dr. Langston said. "We will continue to work with members of Congress on the physician provisions of the legislation during the conference process, including working to keep the doors open at physician-owned hospitals."

But specialty hospitals -- which typically focus on surgical, cardiac or orthopedic care -- would not be the only ones affected. Any hospital offering general medical care that is owned by enough doctors also could be forced to close under the referral prohibition, said David L. Weber, MD, CEO of Wenatchee (Wash.) Valley Medical Center, which is not a specialty hospital but is 100% physician-owned.

House leadership aides would not say who added the Medicare referral language to the children's health and Medicare bill. Several lawmakers in both houses have said that physician-owned specialty hospitals create a dangerous conflict of interest for doctors and threaten the stability of community hospitals in their areas.