A Medicare “Fix” That Really Works: Eliminate the Limiting Charge

Medicare’s limiting charge restriction (LCR) on physician’s services not the sustainable growth rate formula (SGR) has caused the withering of primary care practices^1,2. Price controls have affected physicians and others working to provide health care more than other professions. For example federal civil servants receive annual cost of living salary increases; their average salary and benefits equaled $123,049 in 2009³. The U.S. Congress since the mid-1980s has established that the Bureau of Labor Statistics (BLS) data on employee wages, the Employment Cost Index (ECI), be used to determine salary increases for a variety of government employees-including judges and members of Congress. The Federal Employees Pay Comparability Act of 1990 specifies the ECI will be used in the process to adjust pay for federal General Schedule employees⁴. Since its inception in 1975 the ECI for wages of private industry workers has increased 4.8% per year⁵. Yet the Centers for Medicare and Medicaid Services (CMS) Actuary Office calculations indicate there has been an average increase in the physician update factor of 1.9% per year between 1992 and 2009. Another barometer of economic growth, the consumer price index (CPI), during those same years grew at an annual average of 2.56%.⁶

The physician’s services conversion factor (CF), the amount paid to a physician for each unit of work, was $31.00 in 1992 and $36.066 in 2009 as shown in Figure 1. The physician’s conversion factor (CF) rose by an annual average of 30¢⁷.

Figure 1.

*Years 1992–1997 represent average of surgical, nonsurgical and primary care conversion factors.

Annual increases during the 18 years, 1992–2009, represent a devaluation of physician services compared to all economic services measured by the Bureau of Labor Statistics.

Causality for deficits in physician reimbursement is complex but two reasons are Medicare’s limiting charge (LCR) and transfer of out-of-pocket expense to public costs

Beginning with Prospective Payment Systems in the 1980s and continuing through the 1990s Congress amended the Act, or Medicare law, in order to authorize CMS to exert more stringent price controls on the medical services it purchased. Prior to these government changes §1842 of the Act stated two criteria were considered in determining the reasonable charge for a service. They were:

• The customary charges for similar services generally made by the physician or other persons furnishing such services; and

• The prevailing charges in the locality for similar services.

Effective January 1, 1991 the limiting charge, the maximum charge allowed for Medicare beneficiary services, replaced the maximum allowable actual charge (MAAC) as a component of Medicare reimbursement. The Medicare law was changed again in 1997. Congress by legislation replaced the Medicare Volume Performance Standard (MVPS) with a Sustainable Growth Rate (SGR) provision as specified in section 1848(f)(2). The SGR targets were intended to control the aggregate growth of Medicare expenditures for physician services.

These actions by Congress were not capricious. The Congressional Budget Office (CBO) in the past informed Congressional representatives that projected growth in Medicare and Medicaid would become dominant components of the United States structural deficits. This would happen because health care spending historically has increased about 2.1% faster than gross domestic product (GDP)⁸.

Approximately the same time Congress was changing the Medicare physician payment law out-of-pocket spending for health care services declined from just over 30% in 1975 to its current level, about 13%⁹. The relationship between out-of-pocket, private and public spending on health care contained within a November 2007 report compiled by the CBO, is included in Figure 2.

Figure 2.

Source: Congressional Budget Office

A shift from the direct out-of-pocket costs or expense of care to private insurance and government tax distribution during the last quarter of the 20th century has increased demand and accounts for some of the growth in health care spending according to the CBO¹⁰. A 2006 article in the Journal of the American Medical Association made note that 96 of 100 non-elderly Americans lived in families which spent less than 20% of family after-tax income on out-of-pocket payments for medical care¹¹. Implicit in the article was the finding that four of one hundred patients after 2000 lived in families, which chose to spend large amounts of their income, greater than 20%, on health care when they decide it is necessary.

Physicians must explain the costs of health care more clearly than elected officials, government workers or national media.. Physicians and patients alike recognize that Medicare’s financial health does not permit the government to pay the costs of exigent access to the best care in the world. The new Affordable Care Act law extracts $455 billion dollars in federal payments that serve patients covered by Medicare. Reductions to Medicare and two other programs are transferred by the Act to finance part of the additional $938 billion spending to expand coverage to lower-income beneficiaries. This will not increase effectiveness.

Physicians can be catalyst improving the effectiveness and inclusiveness of American health coverage. Step number one is the following. Physicians should complete and mail to each Medicare contractor to which they submit claims the required document to decline accepting Medicare’s assigned payment on every patient. The document can be downloaded from the following web address: http://www.cms.gov/cmsforms/downloads/cms460.pdf. Mailing all Medicare carriers to whom the physician submits claims the form is not a carte blanche license for any physician charge. An allowed amount still exists, an important point in the court of public perception. The physician may choose to accept assignment on some patients; yet not be obligated to accept assignment on all patients. By declining Medicare assignment the patient and the physician begin to re-establish the value relationship between service provided and the patient’s perception of care.

The following example of the allowed amount a doctor could receive to offset their practice costs appears in the Medicare Manual 100–4 Chapter 1 section 30.3.12.

• Participating fee schedule amount (physicians accepting assignment): $2000

• Nonparticipating (physicians not accepting assignment) fee schedule amount: $1900 (95% of $2000) = $1900

• Limiting charge (total available to physicians not accepting assignment): $2185 (115% of $1900) = $2185

Second, by not accepting assignment doctors set in motion a powerful negotiating tool, which might be used to remove the LCR. When physicians do not accept assignment CMS must locate each beneficiary, create and mail individual checks and perform accounting functions. The Centers for Medicare and Medicaid Services (CMS) in the majority of cases depends upon physician offices to perform much of the accounting reconciliation between the Medicare payment for a pool of beneficiaries and the physician’s practice. Deferring these expenses to physician offices is efficient, a cost savings, for Medicare and a practice expense physicians absorb.

Once physicians demonstrate to Congress the burden of administration costs CMS will incur if physicians do not agree to accept assigned fees (i.e. about 8% less than what they might collect) Congress and CMS may consider the following. Central price controls, LCR, are not fair when doctors are serving as subsidiary bookkeepers. Without the LCR physicians can offset these accounting costs, CMS and the federal government can calibrate what is financially possible within federal revenues and the patient and the doctor can together decide the value of care.

The new Affordable Care Act will follow a predictable course. A bureaucracy attempting to decrease out-of-pocket spending by all constituents will be unable to mitigate the mushroom cloud of expanding utilization. In the next decade like in this decade the alternative will be to limit the dollar amount paid per unit of service. Absent the freedom of patients and their doctors to negotiate a means to offset the subtraction of Medicare funds from primary care and others, doctors will be penalized in order to care for Medicare beneficiaries. For example, figure 3 depicts the difference between the physician update factor and the consumer price index each year beginning in 1992. Doctors cannot sustain their practice costs if their update factors year after year fall below the consumer price index or inflation. Physicians can propose a thoughtful sequence of steps to expanding health care coverage. Begin with a Congressional demonstration that the federal government establishes a fiscally sound contribution allocated from taxes Americans pay. This is a correct sequence and removing the LCR will facilitate same. An example of the wrong sequence is: after 40 years of Federal Medicare husbandry Senator Durbin of Illinois arguing in favor of the new federal health care law said, “Left untouched, Medicare is going broke.”¹²

Figure 3.

*Informa ion from the Federal Reserve and the Centers for Medicare and Medicaid Services

A sustainable federal contribution will not limit a patient’s timely access to the to the best primary care doctors in the world if the patients and doctors are allowed to negotiate the difference between what government is able to contribute and the value of the service. However, what James Madison called the salutary coercion of the magistracy in this case the assumption a central bureaucracy can assign value, LCR, for care will not sustain the American level of medicine. Care is personal, tangible and empathetic as depicted by the powerful image in Fidel’s 1891 portrait used by Dr. Verghese in The Wall Street Journal article “The Myth of Prevention,” June 20–21, 2009. The sum of empathy, skill and access at any hour equals the value of a physician’s service. These components are unique in each case.

Regression to a mean formulae, which set out to frame within limits the annual amount paid to all physicians, do not properly value the care of those who are most ill. We can learn from the experience in Germany, a country with a 130 year-old health insurance system. An article in The Economist May 1–7, 2010, reports Germany’s health minister, Philipp Rosler, proposed to convert part of the employees’ payroll contribution to health insurance premiums. Within the article a graphic shows that before the new United States health care law government expenditure as a percent of gross domestic product (GDP) was less than the percent in Germany and France, about equal to that in Canada and Great Britain and more than that in Switzerland and Spain.¹³

Next is an important piece of additional information. The United States structural debt, the year after year imbalance between the government revenue and spending is 53% of GDP in 2009 and could exceed 90% by 2020, ten years from now. Debt as a percent of GDP in Germany is 38.9%, Canada is 28.6% and Switzerland is 22.5%. Debt can cause government programs Medicare for example to be reduced, a direct consequence of misalignment in afore mentioned sequence of steps and discipline.

The comfort of what is familiar can cause inertia. My first suggestion is doctors should not accept Medicare assignment. The second suggestion is to ask physician organizations to use our money to help us implement not accepting assignment in our offices. Physicians over a long-term should argue that removing the LCR is the best method to assure patients receive care they believe is valuable. And the federal government contributes to care that is reasonable and necessary.

Citizens have become suspicious of government and other third party controls over their health care choices. Gallup polling analysis shows that Democrats believe that 41¢ of every dollar the federal government spends is wasted. Republicans believe that figure is 54¢ and independents estimate it is 55¢. A recent ballot in our state, Missouri, found 71% of voters did not think the federal government should mandate every individual purchase health care. Physicians have a role confidently stating: the patient and the doctor can determine the overall value of what is reasonable and necessary. Patient choice is as potent a tool to determine efficient care as any third party or government contrivance.

Biography

Patrick K. Price, MD, is a Kansas City ophthalmologist, MSMA member since 1982, and formerly served as a Medicare medical director for all of Kansas, Nebraska, and Western Missouri for 14 years while continuing his private practice.

Contact: hcfaprice@aol.com