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Medicare Recipients Face 12.4% Rise in Premiums

By Robert Pear

The New York Times, March 25, 2003

Medicare beneficiaries face a large increase in premiums next year, and doctors' fees will probably be cut because Medicare spending surged unexpectedly last year, federal officials said today.

Richard S. Foster, chief actuary of the Medicare program, estimated that the Medicare premium would rise to $66 a month, an increase of $7.30, or 12.4 percent, the largest increase in 11 years.

Medicare officials said they now estimated that the fees paid to doctors for treating Medicare patients would be cut 4.2 percent next year.

Premiums charged to the elderly and the amounts paid to doctors are computed according to complex formulas set by law.

The projected cut in doctors' fees is remarkable because President Bush just signed legislation to increase Medicare spending for doctors' services by $54 billion over 10 years.

A major purpose of the legislation was to avert cuts in doctors' fees like the one now being forecast.

The prospect of a pay cut for doctors creates a political problem for Mr. Bush and Congress. Medicare cut the average doctors' fee 5.4 percent last year, and many doctors say they cannot afford to take new Medicare patients if the government cuts their fees again.

Dr. Yank D. Coble Jr., president of the American Medical Association, said the impending cut showed that Medicare's formula for paying doctors was severely flawed.

"Under the formula," Dr. Coble said, "physicians are penalized if services to Medicare patients grow more rapidly than the gross domestic product. At times of slow economic growth, it is likely that Medicare spending on physician services will exceed the target and trigger cuts in physician payments. But the health care needs of America's seniors don't change with the ups and downs of the economy."

Medicare provides health care for 40 million elderly and disabled people. When spending on doctors' services increases, beneficiaries' premiums normally rise as well because the premiums are supposed to cover about one-fourth of the costs of the Medicare trust fund that pays doctors.

Even when Medicare reduces the payment for each service, total Medicare spending for physician services can still rise if doctors perform more services, or more complex services for which the government pays more. That is what happened last year.

Medicare spent $45 billion on doctors' services last year, an increase of $3 billion, or 7 percent, from 2001, even though the average fee for each service was reduced.

Thomas A. Scully, administrator of the Medicare program, said the fee cut was offset by "a stunning 8 percent increase in the volume" of doctors' services to Medicare patients last year.

Medicare pays doctors under a fee schedule that sets payment rates for more than 7,000 procedures.

Thomas L. Grissom, director of the federal Center for Medicare Management, said, "The estimated reduction in physician fee schedule rates for 2004 is due, in large part, to substantial growth in 2002 in the volume and intensity of physicians' services."

In other words, doctors are performing more procedures and tests.

The government previously said that doctors could expect increases in Medicare fees in 2004 and later years. But, Mr. Grissom said, "we now estimate physician fee schedule updates will be negative for 2004 to 2007," because spending for doctors' services grew more and the economy grew less than expected last year.

Members of Congress from both parties have promised to provide Medicare coverage of prescription drugs. But even without new benefits, the cost of the program is growing rapidly.

Mr. Foster, the chief actuary, itemized some of the increases in Medicare spending last year:

· Inpatient hospital care, up 10 percent, to $104.9 billion.

· Outpatient hospital services, up 10 percent, to $15.4 billion.

· Skilled nursing homes, up 9 percent, to $14.6 billion.

· Home health care, up 14 percent, to $10.5 billion.

· Durable medical equipment, including wheelchairs, up 20 percent, to $6.5 billion.

· Hospice, up 24 percent, to $4.6 billion.

In addition, Mr. Foster said, federal officials saw a rapid increase in hospital admissions for Medicare patients last year.

Caroline R. Steinberg, vice president of the American Hospital Association, said, "A lot of new technology makes surgery a better, safer option."

She mentioned, for example, the growing use of laparoscopic surgery, which requires just a few small incisions, and the implantation of wire-mesh devices known as stents, to prop open clogged arteries.