Possible Medicaid, Medicare cuts darken MD payment picture

Physician Compensation Report, June, 2003

Steep Medicaid physician reimbursement rate cuts are likely to take effect during the second half of this year or early in 2003 in a host of states--just as Medicare rates head for a likely 4.2% cut in January 2003 unless Congress intervenes. The heavy reliance that many physicians have placed during the last several decades on government reimbursements is under challenge.

In California, Gov. Gray Davis (D) on May 14 reiterated his January proposal to slash Medi-Cal reimbursement rates by 15% for physicians, hospitals and other fee-for-service (FFS) providers, a cut that could take effect as soon as July 1. Rates for managed care plans, which handle about 50% of Medi-Cal's patient load and contract with many, mostly large medical groups and independent practice associations, would fall about 12%, the net result of a 15% general cut and a 3% hike for undertaking quality assurance programs. The managed care rate changes would take effect as the plans' contracts with the state come up for renewal. Physician rates to care for Medi-Cal patients presumably would fall shortly thereafter.

In the Texas legislature, as of May 16, the House had voted to cut Medicaid reimbursement rates by 5%, and the Senate had voted to cut them by 3%. Texas Academy of Family Physicians (TAFP) spokesman Tom Banning said a conference committee of the two houses would set a final percentage cut, which would need several more layers of approval before it took effect. As in California, the rate cuts would affect managed care plans with a time lag.

In Nevada, the legislature approved Medicaid FFS rate changes on May 13. There would be some important increases; for instance, checkups and preventive care visits would rise from $35 to $44. But some pediatric surgical rates would nosedive by up to 80%. For example, pediatric surgeons' payments for a hernia operation would fall 70%. Some specialty test rates would be cut sharply as well; several heart tests would go from $43 to $22.

These pediatric surgery rate cuts come at a time when nationally, pediatric surgeons' pay levels are rising at 8% per year or more. With pediatric surgery caseloads heavily dependent on Medicaid, several such surgeons already have left or are planning to leave the state, the Las Vegas Review-Journal reports.

California: Back to Mid-'80s Levels

Medi-Cal has had only one general physician rate hike since 1985--16 2/3% in 2000--says California Medical Association (CMA) budget lobbyist Heather Campbell. The proposed 15% cut this year would precisely negate the 2000 increase, putting the rates back where they were in 1985, she adds.

A CMA poll in July 2002 of physicians then accepting Medi-Cal patients reported that if Medi-Cal reimbursement rates fell, 40% of respondents would drop out of the program altogether and another 28% would stop accepting new Medi-Cal patients.

A San Diego County Medical Society poll taken early in 2003 found that even at current reimbursement levels, the program will lose many physicians. Of the respondents, 46% accept Medi-Cal now, and of those, 26% say they will drop out of the program within three years at current rates. Among those accepting Medi-Cal, 42% of surgeons and 40% of solo and small practices say they will stop doing so within three years.

Texas: Pressure on Local Safety Net

Like CMA, TAFP took a survey of its members' intended reaction to proposed reimbursement rate cuts. And the results are roughly similar to CMA's, although the proposed rate cuts in Texas are substantially smaller than they are in California.

Of the nearly 500 survey respondents, or about 12% of TAFP's practicing physician membership, 89% participate in Medicaid. Of those, 41% say they'll drop the program altogether if rate cuts in the 3%-to-5% range go through. TAFP published the results on April 26.

Of current program participants, 78% say they accept new Medicaid patients. But just 32% say they will accept new Medicaid patients if the rate cuts are implemented. And 84% say they already have trouble finding specialists who will accept Medicaid referrals.

If physicians participating in the program quit in the numbers suggested by the TAFP survey, public health advocates in the state warn, more patients will end up in hospitals supported by local taxes, and these sicker patients will generate higher health costs.

Medicare: Debate's in Early Stages

Following the late March CMS forecast that the annual update formula for the RVU dollar value would drop 4.2% in 2004 and fall further through 2007, members of Congress and health lobbyists are in the early stages of debating whether and how to revise the formula and avoid cuts in reimbursement rates.

House Ways & Means Health Subcommittee Chairwoman Nancy Johnson (R-Conn.) indicated May 7 at an American College of Emergency Physicians conference in Washington, D.C., that the panel is researching two possible approaches:

* A two-year "fix" while a new formula could be developed, with a small, congressionally mandated rate hike in 2004, and a temporary formula change that should produce a similar result in 2005.