Groups in California Take Aim at Medicare Payments

Five California counties stirred things up last month with a claim that Medicare is underpaying health providers in their areas. Two days later, a barely noticed companion claim was filed — also in California — and that one might cause an even bigger fuss.

The second claim contends that Medicare is paying doctors too much in dozens of California counties and many other parts of the country.

Filed “on behalf of Medicare beneficiaries nationally who reside in counties with unreasonably high Medicare reimbursement rates,” the claim, by Stockton attorney William Parish, could affect millions of people and shift millions of reimbursement dollars.

In essence, Medicare is getting hammered from both ends of the high-cost conundrum. Providers in some areas say they aren’t being paid enough, and patients in other areas say Medicare is paying physicians and nurse practitioners too much. Although Californians are doing the initial hammering, health officials all over the country are watching closely.

“I think it’s a fair assessment to say this is a very important case,” Parish said.

“The rest of the country is keenly interested in what happens,” said Dario de Ghetaldi. He’s the lead attorney for San Diego, Santa Cruz, Santa Barbara, Marin and Sonoma counties, the five California counties hoping to get retroactive raises for doctors all over the country. “I don’t think anything like this has been attempted before, and the implications are very significant.”

Officials at CMS would not comment on either claim, but two representatives — both of whom asked that their names not be used — pointed out that if physicians in some areas (Medicare calls them “payment localities”) were to get more money, physicians in other payment localities would get less.

“And that’s exactly what we’re saying should happen,” de Ghetaldi said.

Going After a Raise for Doctors

The five California counties last month filed a claim with HHS seeking to recover $2.4 billion in alleged Medicare underpayments on behalf of physicians, nurse practitioners and physician assistants nationwide over the past six years.

The portion of the claim providers in the five counties would receive is relatively small — $281 million — but the potential impact around the country is huge. Medicare’s payment and pricing guidelines have far-reaching implications across the health care spectrum. Private health insurers base their reimbursement rates on Medicare scales, giving the federal agency indirect but powerful influence on doctors’ incomes.

The counties claim CMS incorrectly classifies many parts of the country as rural areas with lower costs of living than counties classified as urban. In California, the current payment formula reimburses health providers in rural counties 12% to 24% less than urban counties. Percentages vary in other parts of the country.

“What all this means in real life, is where docs are underpaid, you’re seeing an exodus or a refusal to take new Medicare patients or a dropping of Medicare practices altogether,” de Ghetaldi said.

As a result, elderly and disabled beneficiaries often are forced to travel long distances to find providers, according to the claim.

On Second Thought, Maybe a Pay Cut

The second claim, filed on behalf of Medicare patients, alleges that beneficiaries are paying physicians too much in many parts of the country. By reducing the amount Medicare pays physicians in a particular area — San Joaquin County, where Stockton is located, for instance – beneficiaries would, in turn, have to pay less.

In addition to paying monthly premiums and an annual deductible for outpatient services under Medicare Part B, most beneficiaries also pay 20% of the cost for a physician visit and many other services. The federal government pays the rest.

Medicare payment formulas are complex, but for argument’s sake, we’ll simplify.

If Medicare deems that in San Joaquin County a certain medical procedure is worth $100, the federal government pays $80 and the patient pays $20.

Parish’s class-action claim contends that in many parts of the country, $100 is too high. If the overall reimbursement is reduced to $90, Medicare would pay the physician $72 and the patient would pay $18.

The case doesn’t come without opposition, as physicians and hospitals contend Medicare’s reimbursement rates already are discounted, sometimes below the cost of providing the service.

Last year, as a result of heavy lobbying by the American Medical Association, Congress passed legislation postponing a national across-the-board 5% cut in Medicare payments to physicians. Payment rates were frozen for a year.

The Congressional Budget Office projects Medicare physician payment rates will drop 10% by 2008. A report last year from Medicare Trustees predicted cuts totaling nearly 40% by 2015.

In California, AMA clearly will line up in favor of the five counties’ claim that doctors need a raise and in opposition to the beneficiaries’ move seeking a Medicare payment reduction.

Redrawing the Map?

Both claims ask federal officials to reassess Medicare geographic payment designations to more accurately reflect cost-of-living rates in different parts of the country.

Medicare payment rates initially were established in the 1960s when Medicare was born. They were adjusted in the 1980s and then again in 1996. The companion claims filed last month in California contend that CMS did not do enough adjusting — or that in some cases, the agency made the wrong adjustments.

“Here’s a good example of how out-of-kilter the current payment systems are,” said de Ghetaldi. “Nationally, there are 89 payment localities for physicians,” he said, referring to 89 different payment levels based on specific sets of measurements and criteria, depending on geographic region and cost-of-living rates. “For hospitals, there are 433 payment localities. That means hospital payments tend to be much more accurate than payments to physicians.”

“Santa Cruz County recently became part of the highest-paid locality for hospitals, but it’s still considered one of the lowest-paid for physicians. How can that be equitable?” de Ghetaldi asked.

Neither Parish nor de Ghetaldi has received a response from CMS, formal or informal, and neither is surprised.

“My experience has been that it’s a good idea — and only fair — to give the government an opportunity to go over all the details,” Parish said. “Especially considering the magnitude of these claims.”

None of the attorneys involved or CMS representatives could predict what comes next, but both claims clearly are laying the groundwork for federal lawsuits.

“What we’re asking (CMS officials) to do is follow their own guidelines and reassess payment regions accurately,” Parish said.

But from the county perspective of seeking more money for doctors, it might not be so simple.

“We don’t believe (CMS officials) actually have the power to do what we’re asking them to do,” de Ghetaldi said.

Congress, the U.S. Supreme Court or both eventually might become involved if the issue isn’t resolved at lower levels of government.

If the five counties are not satisfied with CMS’ response, “then we file a lawsuit against the Secretary of Health and Human Services,” de Ghetaldi said.

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