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Washington Senate Democratic leaders took steps to move a stand-alone bill that would have repealed the widely criticized Medicare physician payment formula in advance of other health system reforms, laying the foundation for a new system to update doctor rates. But the legislation was blocked Oct. 21 by Republicans and Democrats who expressed worries about its cost.

The development means that a multiple-year Medicare payment solution will have to wait until after the Senate takes care of a national health system reform bill later this year, Senate Majority Leader Harry Reid (D, Nev.) said after the vote.

Sen. Debbie Stabenow (D, Mich.) on Oct. 13 introduced the Medicare Physician Fairness Act (S 1776), which would abandon the current physician pay formula and set future annual payment updates at zero, a revision that would cost roughly $245 billion over the next decade. By passing a bill that repealed the sustainable growth rate formula and eliminated its accumulated spending target debt, budget constraints that have hobbled permanent pay reform in the past would have been lifted, thereby allowing a new system to be crafted through future legislation.

"Enough is enough," Stabenow said before the vote. "Enough of running physicians up to the brink every year without them knowing what is going to happen. This legislation will wipe the slate clean."

But by a vote of 47 in favor to 53 opposed, the Stabenow bill failed to proceed beyond the first of possibly several procedural challenges that would have required 60 votes to overcome. A successful vote would have brought the legislation to the floor and limited debate on it.

The bill also would have been subject to a budgetary point of order. Because the costs of scrapping the payment formula wouldn't be paid for, the bill would have violated budget rules and raised the federal deficit.

"I don't know of a single person who wants to see reimbursement cuts to doctors who treat Medicare patients, but if Congress is going to step in and prevent it, we shouldn't do it by racking up more debt on the government's credit card," Senate Minority Leader Mitch McConnell (R, Ky.) said before the vote.

The deficit issue also resonated with some key Democrats. For instance, Senate Budget Committee Chair Kent Conrad (D, N.D.) said he could not support the Stabenow bill without finding money to offset its costs. He instead floated an offset, $25 billion measure that would prevent physician cuts and replace them with annual 0.5% pay increases for only two years, through 2011. At this article's deadline, Senate negotiators were considering Conrad's proposal or a one-year patch as a possible interim measure.

Democratic House leaders indicated earlier in October that they would take steps to strip a 10-year Medicare physician payment provision out of pending health system reform legislation and move it as a separate measure. That action also would have the effect of lowering the projected cost of the House reform bill.

But leaders in that chamber want to pass the payment solution in conjunction with statutory "pay-as-you-go" legislation. That move would allow the physician pay piece and several other measures to raise the federal deficit, but would require budgetary offsets for any other new spending going forward.

Doctors, seniors step up the pressure

The American Medical Association and other physician organizations came out in strong support of the Medicare Physician Fairness Act soon after its introduction. AMA President J. James Rohack, MD, said the Association was "deeply disappointed" with the vote and said the Senate had failed Medicare beneficiaries.

"There is widespread agreement among Republicans and Democrats that the formula is broken and needs to be repealed," he said. "Congress created the Medicare physician payment system, and Congress needs to fix this problem once and for all to fulfill its obligation to seniors, baby boomers and military families."

An AMA ad calls for the Senate to pass legislation to preserve access to health care for America's seniors.[Photo from AMA video]

The AMA launched a television ad campaign Oct. 15 featuring seniors and physicians calling on the Senate to protect Medicare security by repealing the physician payment formula. The ad urged viewers to call their senators in support of the Stabenow bill.

Physician organizations also picked up key support from the seniors group AARP.

AARP and the AMA sent an Oct. 16 letter to the Senate urging lawmakers to pass the bill. "The continuing threat of steep Medicare payment cuts jeopardizes seniors' access to care and physicians' confidence in the government's commitment to funding a strong and reliable Medicare program," the letter stated.

Leaders of the AMA, AARP and the Military Officers Assn. of America appeared with Stabenow at an Oct. 20 news conference at the Capitol in an effort to push support for the legislation over the 60-vote margin.

But Rep. Wally Herger (R, Calif.) questioned AARP's endorsement of the measure, saying it was expected to result in more than $60 billion worth of Medicare premium increases for seniors. By law, 25% of any increases in Medicare Part B spending must come from beneficiaries' premiums unless Congress finds additional funds to keep premiums stable, he noted.

"It makes no sense for AARP to abandon their long-stated legislative priorities, which had included ensuring Medicare physician payment reform wouldn't increase seniors' premiums," Herger said.

A two-step process

Even if the Senate and House end up agreeing on some plan that involves repealing the current Medicare physician pay system, a new update formula would be needed if doctors were to receive rates that track their costs of providing care.

Congress could wipe the budgetary slate clean and eliminate reductions going forward, but Medicare still would need a new way to update physician pay, said Robert Doherty, senior vice president of governmental affairs and public policy for the American College of Physicians. "That will be a second piece of legislation that still needs to be developed. But you can't get to that step two until you get rid of the accumulated cuts."

Dr. Rohack reiterated the AMA's support for the permanent repeal language in the House health system reform bill. The House measure proposes establishing a new formula, starting in 2011, that would allow annual spending targets to grow based on a rate of the gross domestic product plus 1%. It also would provide a 5% Medicare bonus for physicians in specialties traditionally considered to be primary care.

The Senate Finance Committee version of health reform, which Democratic leaders still were busy merging with another bill, would replace the planned 21.5% cut in 2010 with a 0.5% increase, but it would not provide any additional updates in future years.

Dr. Rohack reiterated that a permanent Medicare pay overhaul -- not a temporary patch -- is an essential part of health system reform, regardless of the path it takes to enactment.

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Washington -- Health insurance cooperatives are being pitched by some on Capitol Hill as a promising way to expand health coverage to the uninsured without giving the federal government too heavy a hand in the process. But some critics say the concept is too lightweight to do much good.

The health system reform bill approved by the Senate Finance Committee on Oct. 13 does not include a public insurance plan option favored by Democratic leaders and President Obama. Rather, it would implement member-owned health insurance co-ops that would operate at the state level to offer coverage for the uninsured.

At this article's deadline, Democratic leaders were still working on a final Senate bill for floor consideration based on the Finance legislation and a more liberal measure passed by the Senate Health, Education, Labor and Pensions Committee. Although the public option might be incorporated into the final bill, co-ops also might play a role, perhaps as a fallback for states that decide against participating in a federal plan.

But the co-op concept has its congressional detractors. Foremost among them is Sen. Jay Rockefeller (D, W.Va.).

"This is a dying business model for health insurance," Rockefeller wrote in a Sept. 16 letter to Senate Finance Committee Chair Max Baucus (D, Mont.) and Sen. Charles Grassley (R, Iowa), the panel's ranking GOP member. "Moving forward with health insurance cooperatives would expose Americans, who are hoping for a better health care system, to a health care model that has already been tried and largely failed in the vast majority of the country."

5 consumer health insurance co-ops are operating in 4 states.

Rockefeller ended up voting for the Finance reform bill, but he vowed to continue pushing for the inclusion of a public option in the final Senate legislation.

Over the summer, Rockefeller asked for more information on co-ops from the National Cooperative Business Assn., the U.S. Dept. of Agriculture and the Government Accountability Office. According to the NCBA, there are only five consumer health insurance co-ops, operating in four states. Baucus has proposed investing $6 billion in new co-ops to offer nonprofit, member-run health plans.

But Rockefeller said it would be unwise to invest that much money in a largely unproven concept.

Co-op executives speak out

Executives with the existing health insurance co-ops say they are running a viable model for providing premium health care to their customers. But some also question the rationale of duplicating the model on a national scale.

"The reason to look at the model is because it's a group that gathers together to provide comprehensive care built on a primary care model which has to operate on a budget because it's integrated with an insurance plan," said Eric Larson, MD, MPH, executive director of the Group Health Insurance Institute, the research arm of the Group Health Cooperative in Seattle. "Cooperatives can deliver high-quality care and presumably could do a better job of controlling costs than some of the inflationary models that exist otherwise. Having said that, to start from scratch and use the co-ops as a method that would solve the problems of nationwide access and cost is a tall order."

One reason Dr. Larson expresses hesitance with a national co-op model is that GHC was founded in 1947 and has been able to build up a base of 600,000 covered lives over the years only after a rough initial start. "In the early days, it was ostracized by the community," he said.

Still, Dr. Larson remains a big proponent of co-ops. He notes in particular the fact that physicians don't feel compelled to conduct unnecessary procedures under the member-owned plans.

"Where I was before, we were not encouraged to do transactions over the phone or to use electronic medical records. And here, if you can do as good a job or better without a person having to come in, the incentive is there to do that."

Some said Rockefeller and other critics are too focused on a public plan option to give fair consideration to co-ops.

"Cooperatives are not antiquated. They are a viable and tangible business model which services their members in a manner consistent with their needs," said Al Wearing, sales and marketing director for the Group Health Cooperative of South Central Wisconsin. It has been operating for 33 years and has roughly 55,000 members.

"In some respects, Sen. Rockefeller is correct in that just creating cooperatives would not solve the fundamental problems of delivering health care in this country, just as the public plan option has little chance of resolving the primary issue," Wearing said. "The fundamental issue here is the cost of medical care. All of the legislative proposals offer solutions to access, but there never seems to be any true understanding of the costs."

Co-ops as a compromise

Some policy experts said a national co-op model could be a manageable and efficient system if the government made certain changes in the way they treated the programs.

"This is not an issue of corporate structure or insurance regulation, but really a question of tax policy," said Ed Haislmaier, senior research fellow in the Center for Health Policy Studies at the Heritage Foundation, a conservative think tank based in Washington, D.C. "To the extent that the public feels it's a good idea, they may go there, because some mutual insurance companies have done very well."

The American Medical Association has signaled some openness to the concept of co-ops. "A co-op could be a good compromise," said AMA President J. James Rohack, MD. "More than two decades ago, physician delegates to the AMA voted to support co-ops. While the co-ops under discussion may not exactly match the original concept supported by AMA physicians in the '80s, the underlying rationale -- to help extend affordable coverage to as many people as possible -- remains the same."

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Washington -- Women's groups, consumer advocates and lawmakers have come together under the belief that being a woman should not count as a preexisting condition. But they note that changing the current situation is easier said than done.

Women will continue to be denied maternity coverage or charged significantly higher premiums than men in the individual health insurance market until Congress adopts a national health system reform bill, witnesses said during an Oct. 15 Senate Health, Education, Labor and Pensions retirement and aging subcommittee hearing. Legislation adopted by Senate and House committees would end the practice of setting premiums and denying coverage based on gender, but negotiations to merge the bills before floor votes in each chamber continue.

Democrats increasingly have targeted alleged health insurance abuses to rally support for the legislation, with President Obama generally using the term "health insurance reform" since the congressional August recess. A House Energy and Commerce subcommittee held hearings on the perceived shortcomings of health insurance coverage on Oct. 15 and Oct. 20.

Sen. Barbara Mikulski (D, Md.), who chaired the HELP subcommittee hearing, said she intended for it to be a search for the "sensible center" on reform to which Americans can come together. The hearing focused on disparities between the disparities between the coverage offered to men and women -- as well as its cost -- in the nongroup insurance market.

Mikulski said she was shocked by the testimony of Peggy Robertson, a mother of two from Centennial, Colo., who said she was told she could not obtain an individual market health plan she sought because she had a cesarean section in 2006. The insurance company, in a letter to Robertson, said it was denying her application because state law prohibited it from charging enough to cover her risk of a repeat C-section delivery within three years of the first.

Some health plans cite a C-section as a preexisting condition in denying a woman individual insurance.

"They said if I would get sterilized, they would then be able to offer insurance to me," Robertson said.

"I found that bone-chilling," Mikulski said. "It put me on the edge of my chair."

Women also often pay higher premiums for individual health insurance, according to a 2008 report by the National Women's Law Center. For example, 25-year-old women paid between 6% and 45% more than 25-year-old men for the same individual market health plan. Older women faced similar disparities, based on online health plan applications submitted in 47 states and the District of Columbia between July and September 2008, according to the report. Also, 34 states offer no protections against using gender to determine premiums, according to a 2009 update.

The American Medical Association and the American College of Obstetricians and Gynecologists have policies opposing gender rating. They also oppose health plans citing past procedures -- such as C-sections -- as preexisting conditions and reasons for denying coverage.

Women in the group insurance market have greater protections. Federal and state laws ban most employers from charging different premiums for their health coverage based on gender, according to the National Women's Law Center report. Employers also must include maternity coverage in their plans.

Testifying before the subcommittee, America's Health Insurance Plans President and CEO Karen Ignagni said AHIP's member companies agree that women should not face higher premiums just for being women or face coverage denials based on pregnancy-related care. "Our industry is committed to making the experiences that we've heard about today a thing of the past." But she said these differences exist partly because not everyone is required to have health insurance to offset the higher costs of care for some beneficiaries -- another system change proposed in the pending legislation.

Sen. Richard Burr (R, N.C.) said Democrats were ignoring the influence of medical lawsuits in inflating health care costs and deterring obstetrician-gynecologists and other physicians dedicated to women's health from practicing. "It is the 800-pound gorilla in the room when it comes to affordable access to health care for women."

Diana Furchtgott-Roth, a senior fellow at the Hudson Institute in Washington, D.C., said health insurance should work more like car or home insurance -- it should be portable, customizable and have a competitive national market. The bills Congress is considering have too many tax increases and would raise premiums by mandating that people have a comprehensive package of benefits, she said.

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Federal stimulus funding has helped state Medicaid programs avoid drastic reductions in eligibility and physician fees, but program directors already are contemplating such cuts when the additional federal support runs out at the end of next year.

States faced unprecedented financial pressures in fiscal 2009, which ended on June 30 for most states. They experienced a surge in new Medicaid enrollees and a historic decline in tax revenues. States coped by trimming or freezing Medicaid fees and restricting benefits, among other actions, according to a ninth annual survey of state Medicaid directors released Sept. 30 by the Kaiser Family Foundation and Health Management Associates.

Medicaid enrollment grew by 5.4% in fiscal 2009 -- the highest rate in six years -- while total program spending increased by 7.9%, the fastest pace in five years. The enrollment spike was the main reason spending grew, according to report co-author Vernon K. Smith, PhD, principal with Health Management Associates. "As more people lost their jobs and lost their health coverage, more people became eligible."

Meanwhile, state revenues plummeted: Tax collections dropped by 16.6% in the 12 months leading up to June 2009, according to U.S. Census Bureau statistics. This contributed to a 6.3% decline in the state portion of Medicaid spending -- the first in the program's history, Smith said.

But the 2009 Medicaid cuts would have been much worse without the most recent federal stimulus package, Smith said. "Without any doubt, we would have seen widespread cuts to eligibility. Cuts to benefits and provider payment rates would have been much, much more severe." Twenty-nine states said they would have cut Medicaid eligibility had the stimulus act not prohibited them from doing so as a condition of accepting the additional Medicaid funding, the report said. Fourteen states had to reverse enacted cuts to obtain the federal money.

Medicaid enrollment grew by 5.4% in fiscal 2009.

Despite the stimulus, states are far from being on solid financial ground, Smith said. The additional federal Medicaid funding expires on Dec. 31, 2010. State revenues probably would not rebound for a year or two even under an immediate economic recovery, and Medicaid enrollment likely would remain steady for many months to come, he added.

Medicaid directors are worried about conditions when the stimulus funding runs out. For example, Nevada would need to find about $240 million in fiscal 2010 to maintain its existing Medicaid program, said Charles Duarte, administrator of the Division of Health Care Financing and Policy at the Nevada Dept. of Health and Human Services. New York would have to find about $6 billion for its Medicaid program, said Deborah Bachrach, the state's Medicaid director.

Some said Medicaid cuts that were unthinkable a few years ago may be necessary. Duarte said Nevada might reconsider a list of potential cuts he prepared last year that weren't implemented -- including wholesale elimination of eligibility groups, restricted home- and community-based benefits, and reduced hospital and physician Medicaid pay. "This could affect access, but we're at the point where that may be a secondary consideration."

Bachrach said physician Medicaid pay is an obvious target. New York increased payments by more than 50% in recent years in an effort to get them closer to Medicare levels. "That is one of the goals that may be shortchanged as a result of the plummeting resources."

Medicaid pay on the chopping block

Nine states cut physician Medicaid fees in fiscal 2009, and 13 have adopted pay cuts for fiscal 2010 -- the most since the Kaiser Family Foundation and Health Management Associates began tracking doctors' fees in 2004. But the situation could have been -- and still could be -- much worse.

Although legislatures have closed billions in budget gaps, they could face combined deficits of $350 billion in their 2010 and 2011 budgets, according to Robin Rudowitz, principal policy analyst for the Kaiser Commission on Medicaid and the Uninsured.

Additional Medicaid funding from the stimulus package expires on Dec. 31, 2010.

Also, spending and enrollment projections for 2010 don't add up, Smith said. State budgets predict an average 6.3% growth in Medicaid spending, but enrollment is expected to grow by 6.6%, the report found. State budget shortfalls are likely so large as to prevent states from matching expected enrollment growth with general funds, he said.

Washington state physicians, like those in California and Utah, saw Medicaid fees reduced for 2009 and 2010. "We had some increases the session before, and they took those increases away," said Jennifer Hanscom, spokeswoman for the Washington State Medical Assn.

The report found that some states, such as Maine, managed to boost Medicaid pay for office-based physicians for 2009 and 2010. But Maine's increases came at the expense of hospital-based physicians, said Andrew MacLean, deputy executive vice president of the Maine Medical Assn.

Other states' Medicaid rates essentially are holding steady. South Carolina trimmed Medicaid fees for physicians in 2009 before reversing the cuts for 2010, said Gregory Tarasidis, MD, president-elect of the South Carolina Medical Assn. But continued budget deficits could threaten those fees, he said.

Balking at the expansion price tag

Smith said state Medicaid directors are confident that the program could provide quality coverage to millions more low-income people without health insurance. But they're concerned that Congress will ask states to shoulder too much of the cost.

The House and Senate health system reform bills would expand Medicaid eligibility to any citizen earning 133% or less of the federal poverty level. Seventeen states offer some coverage to childless adults, but it is often very limited.

The House bill would pay for the expansion using only federal funds, but the pending Senate bill would provide less federal support to states that already enacted Medicaid expansions, such as New York. "In essence, we're being penalized for the decisions we've made in past years to invest state dollars to cover people who are very low-income individuals," Bachrach said.

Smith said states probably are waiting to see what Congress does on reform instead of adopting their own health care expansions. "If you go ahead and enact a change now, you will not be rewarded in the future."

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Washington -- Backed by a recent government watchdog report, one key lawmaker is making the case that not only is beneficiary access to Medicare doctors good, in some areas patients might be accessing too many services.

Senate Finance Committee Chair Max Baucus (D, Mont.) commissioned the Government Accountability Office to assess the level of physician services used in the program. The agency determined that Medicare patients experienced few problems accessing doctors, and the use of services increased nationwide from 2000 to 2008. Physician willingness to accept Medicare patients also increased during that time, as did payments.

But the report, released Sept. 28, detected a pattern of potential overuse of services, especially in more densely populated urban regions and in the eastern part of the U.S.

Large metropolitan areas were much more likely to be "potentially overserved" than were rural areas, the GAO found. Patients in these areas received substantially more evaluation and management services, minor procedures and imaging services than did those living in other areas.

Beneficiaries in potentially overserved areas on average received 44% more minor procedures in 2008, including ambulatory procedures, eye treatments and colonoscopies. They also had 29% more laboratory tests and 19% more imaging services than those in other areas, the GAO reported.

Medicare patients nationwide used more services in 2008 than in 2000.

These findings of potential overuse did not sit well with Baucus. Part of the health system reform effort he is leading in the Senate is focused on squeezing dollars out of Medicare without harming beneficiary access.

"This report makes clear that serious work remains in determining why the use of certain services under Medicare -- like imaging and minor procedures -- is much higher in certain parts of the country than others, irrespective of a patient's real need, health status or the availability of doctors," he said. "Moreover, the potential abuse and excessive spending revealed in this report is further evidence the status quo of rising health care costs is unacceptable for America's seniors and the long-term fiscal health of the Medicare program."

But physician organizations said the situation was more complex than it might appear. For instance, some services may seem to be overused in certain areas of the country simply because they are medically necessary for the higher volumes of patients that live there, said American Medical Association President J. James Rohack, MD.

"The medical profession is committed to addressing variations in care, but it's important to note that high growth in services does not always equal overuse," Dr. Rohack said. "For example, services that the GAO identified as growing rapidly, like colonoscopies and office visits, are encouraged by Medicare policymakers to promote early detection, prevent disease and manage chronic conditions."

Dr. Rohack noted that the issue is too complicated for such broad solutions as redistributing funds from low-spending to high-spending areas. He said the most successful interventions on the utilization issue will be based locally.

"Through the AMA-convened Physician Consortium for Performance Improvement, physicians are developing evidence-based appropriateness measures that can be implemented at the point of care, and are working to integrate these and other quality measures into electronic medical records," he said.

The argument against cuts

While the GAO found that very few Medicare beneficiaries reported significant problems accessing physician services, the agency did note that the legislative uncertainty surrounding doctor fees points to an ongoing need to monitor access. Medicare physician payments are projected to be cut by 21.5% in January 2010 unless Congress intervenes, and additional years of reductions are set to follow.

"Absent congressional action, the Medicare trustees project payment cuts of about 40% over the next five years to physicians caring for Medicare patients," Dr. Rohack said. "Our concern, shared by AARP and lawmakers, is that these looming cuts will make it difficult for physicians to care for today's seniors and the huge influx of baby boomers into the Medicare program. Permanent repeal of the current payment formula should be part of health reform to keep physicians caring for seniors."

Despite the report's findings on imaging, the American College of Radiology said the overall growth rate for medical imaging in the Medicare system is down dramatically. The Medicare Payment Advisory Commission, for example, found the nationwide imaging growth rate for 2006-07 to be only 2%, which is less than the figure for the growth of physician services as a whole, said Shawn Farley, an ACR spokesman.

"The ACR has addressed unnecessary utilization for the last 20 years via the development of extensive practice guidelines, facility accreditation programs and appropriateness criteria to aid referring physicians regarding which, if any, scan should be prescribed for a given indication," Farley said. "Our highest legislative priority has been to get the Congress and the administration to adopt these utilization strategies for the Medicare program."

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