Massive Medicare Pay Cut Will Take Effect April 1

March 26, 2010

March 26, 2010 — A 21.2% Medicare pay cut will take effect April 1 after the Senate today failed to pass a bill extending the effective date to May 1 before lawmakers recessed for 2 weeks.

The Senate was poised to vote on the Democrat-sponsored legislation this week, but Sen. Tom Coburn, MD (R-OK), put a procedural block on it, saying Democrats were engaged in a harmful exercise in deficit spending. Sen. Coburn said they should find a way to pay for the bill, which also would have extended expired unemployment compensation benefits, subsidies for health insurance premiums for the out-of-work under the COBRA program, and various tax breaks.

The 21.2% reduction in reimbursement taking effect on April Fool's Day does not necessarily mean that physicians will experience the Medicare meltdown everyone has dreaded. When Congress goes back to work on April 12, Senate Democrats will try to pass the 1-month extension again and make it retroactive to April 1. The Centers for Medicare and Medicaid Services has announced that it will freeze payments on physician Medicare claims for the first 10 business days of April and then pay the full amount — as if the reduction never occurred — once the 1-month extension passes in the Senate.

That very scenario played out just weeks ago when the pay cut took effect on March 1, and the Senate voted the next day to delay it until April 1 (the House had approved that measure the week before). The Centers for Medicare and Medicaid Services did not process physician claims for the first 10 business days of the month to spare physicians the impact of smaller checks.

Congress had tried to extend the effective date to April 1 in that earlier episode of the pay-cut melodrama before March 1 rolled around, but Sen. Jim Bunning (R-KY) — setting an example for Sen. Coburn — blocked the bill in the Senate because it added to the deficit.

AMA Wants Repeal, Not Delay

J. James Rohack, MD, the president of the American Medical Association (AMA), said in a press release today that a 21.2% pay cut would force physicians to turn away not only seniors, but also military families whose TRICARE coverage is based on Medicare rates. Dr. Rohack denounced the Senate's failure to avert the day of reckoning on April 1.

"Members of Congress eager to spend a two-week holiday with their families have left America's military families and seniors to fend for themselves through their inaction on a known threat to the Medicare and TRICARE programs," he said. "It is unconscionable for elected officials to play politics with seniors and military families."

The AMA wants Congress not just to delay the cut, but repeal its cause — the sustainable growth rate (SGR) formula that Medicare uses to determine physician reimbursement. The formula sets a target for Medicare spending on physician services based in part on growth in the gross domestic product. If actual spending exceeds the target, Medicare is supposed to lower physician reimbursements the next year to recoup the difference.

Because Congress has called off annual SGR-mandated cuts going back to 2003, the gap between actual and targeted spending on physician services has continued to expand, resulting in the 21.2% reduction for 2010. It was originally set to go live on January 1, but Congress postponed the effective date until March 1 and then again until April 1.

Postponement of Pay Cut to October 1 Still in the Works

Organized medicine has strenuously lobbied Congress to replace the SGR formula with one that would set reimbursement rates more in line with practice expenses. However, the Congressional Budget Office has estimated that doing so would cost more than $200 billion, an amount that scares Democratic and Republican lawmakers mindful of an enormous federal budget deficit. Consequently, lawmakers have turned to more short-term, makeshift solutions.

One such temporary solution was in the works earlier this month. The Senate passed a bill that would postpone the cut from April 1 to October 1 at a cost of $6.3 billion in addition to extending other federal benefits on a more long-term basis. The House was expected to approve it as well, with the signature of President Barack Obama sealing the deal.

Then lawmakers discovered a problem. The Senate measure contained some "pay-fors" — revenue-raising provisions that offset some of a bill's cost — that Democrats also had inserted in the healthcare reform legislation just passed by Congress. Democrats then stripped these "pay-fors" out of the Medicare pay-cut bill to make sure their reform bill looked as fiscally fit as possible.

While Democrats searched for new "pay-fors" to fix the long-term extension bill, physicians were still facing a Medicare meltdown on April 1. Consequently, the House passed a 1-month delay to May 1 — the same delay that the Senate failed to vote on today.

If the Senate approves the 1-month delay when it reconvenes on April 12, congressional Democrats will have some breathing room to perfect and pass the bill authorizing the extension to October 1. That will buy them additional time — if not courage — to devise the permanent SGR fix that physicians have been seeking.

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