2001 Medicare Spending Rose 10%; Physician Cuts Likely
The Centers for Medicare and Medicaid Services announced yesterday that Medicare spending rose 10% in fiscal year 2001, the largest increase since 1995, the AP/Nando Times reports. CMS officials attibuted the increase in the year ending Oct. 1 to health care inflation and the growing number of beneficiaries. "The exploding cost inflation that has returned to the Medicare program after years of relative stability is not good for anyone -- the beneficiary, the taxpayers or the long-term health of our delivery systems," CMS Administrator Tom Scully said. Medicare beneficiaries will likely bear a portion of the increased costs; HHS last month announced increases in premiums, deductibles and co-payments for beneficiaries (Carter, AP/Nando Times, 10/31). CMS also said that Medicare will spend $41.7 billion on physician services in 2002, a $500 million increase.
Meanwhile, the slowing economy will likely lead to a reduction in the reimbursement rate from Medicare for individual doctors in 2002, Bloomberg reports. The payment formula used by CMS is tied in part to the U.S. economy, which has slowed in the past year. "The formula locks us in; there is no wiggle room," Scully said (Hallam, Bloomberg, 10/31). USA Today reports that the rate reduction will be about 5% on "many procedures." The American Medical Association said the cut could lead fewer doctors to accept new Medicare patients (USA Today, 11/1). Doctors received a 4.5% increase in reimbursement rates for 2001 (Bloomberg, 10/31).
CMS yesterday also issued a final rule making changes to the hospital outpatient prospective payment system, the reimbursement method for outpatient procedures that was implemented in 2000. The rule updates the "conversion factor" used to determine ambulatory care payment rates and will result in a 2.3% increase in Medicare reimbursements to hospitals for outpatient services effective Jan. 1, 2002 (Final rule, 10/31). The rule includes a "one-time policy change for next year" in how new "high-cost and high-technology" drugs and medical devices are reimbursed (CMS release, 10/31). Until 2003, such items are eligible for extra "pass-through" payments -- reimbursements above the base payment for an outpatient service (known as an ambulatory payment classification or APC). However, regulations require pass-through payments to be reduced by a uniform amount if their total projected cost for the year exceeds an "applicable percentage of total payments estimated to be made under OPPS in that year." For 2002, that percentage is 2.5%, or $437 million of the $17.5 billion estimated total OPPS payments. Total projected pass-through payments, however, are $2.26 billion -- a cost that far exceeds the limit. As a result, CMS would have made an 80.7% reduction in pass-through payments, which would have had "signifant" impact on hospitals. In order to "mitigate" the effect, CMS will next year instead incorporate 75% of the cost of devices eligible for pass-through reimbursement into the base APC payment, reducing total pass-through payments by about $450 million. This move will in turn lower the uniform reduction needed to meet the 2.5% limit; while CMS is not yet sure what the reduction rate will be, it projects a cut of between 65% and 70% (Final rule, 10/31). A copy of the rule is available at www.hcfa.gov/regs/CMS1159F1.doc.This is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.