Medicare trustees' report: It's time to pay the piper

The trustees' report, issued May 1, cannot be seen as good news for physicians, including urologists, who have been seeking elimination of the Sustainable Growth Rate (SGR) component of the Medicare payment formula. The SGR has been blamed for planned reductions of about 5% per year for physicians over the next several years. Medicare trustees point out that when Congress acted last year to override a planned 4.4% reduction facing Medicare physicians this year, Medicare had to use $1.10 of each recipient's premium increase to cover those costs: money that had been slated to replenish contingency funds, which still must be replaced.

In other words, Congress robbed Peter to pay Paul, but at some point, Peter must be repaid.

The trustees' report projects that the difference between Medicare outlays and revenues dedicated to Medicare is expected to exceed 45% of total Medicare expenditures in 2012, meaning that the government must cut costs, generate more revenue, or come up with a combination of both to close that gap.

"Controlling health care costs while supporting high-quality care that prevents costly disease complications and unnecessary costs is critical to putting Medicare on a steady path to long-term fiscal sustainability," the report said.

"These projections demonstrate the need for timely and effective action to address Medicare's financial challenges. Consideration of such reforms should occur in the relatively near future. The sooner the solutions are enacted, the more flexible and gradual they can be."

The report pointed out that Medicare now provides benefits for preventive care and has begun to pay for programs that lower overall costs for beneficiaries with chronic illnesses by preventing complications. It also said that "quality and efficiency measures are being used in pilot-testing methods to pay more for better results, rather than more services, and have been shown in many instances to significantly reduce costs." Translation: The trustees like what they see from pay for performance trials.

In a fact sheet accompanying the report, the Centers for Medicare & Medicaid Services noted that its fiscal year 2007 federal budget "significantly" improves the program's financial outlook through steps that reduce cost growth incrementally. These steps include "modest reductions in price increases for some providers... and gradual limits on the rising Medicare subsidy payments received by the highest-income Medicare beneficiaries."

To keep general revenue financing below 45% of Medicare outlays, the budget proposes to reduce provider payments by 0.4% below what they would be otherwise-each year. In essence, this would amount to an annual surcharge for Medicare physicians.

Offsetting demand for services

The report projected that total Medicare expenditures are estimated to be 3.2% of gross domestic product in 2006, reaching 11% in 2080, reflecting growth in medical prices and the "volume and intensity" of services. In addition, the retirement and aging of the baby boom generation will increase expenditure growth rates for Medicare. Today, there are 3.9 workers for every beneficiary; by 2030, that ratio will be 2.4 to 1.

Under the SGR, the trustees projected physician payment rates would need to be reduced by 4% to 5% each year through at least 2015.