The Centers for Medicare and Medicaid Services (CMS) has started the annual merry-go-round of announcing Medicare cuts that Congress subsequently restores. The merry-go-round is created by the Medicare law’s formula for annual changes to payments for physicians and other Medicare Part B services. Last year, CMS announced a 4.4% cut for 2006 that Congress reversed in January of this year.

Yesterday, CMS proposed a 5.1% cut for 2007. The CMS press release explains

The negative update is projected for 2007 because spending on physicians’ services and other Part B services has been growing at a much faster rate than target spending. Expenditures for physicians’ services in 2005 increased 10 percent over 2004, even faster than had been previously projected, mainly due to an increase in the number and complexity (or volume and intensity) of services furnished to Medicare beneficiaries, including more frequent and intensive office visits, and rapid growth in the use of imaging techniques, laboratory services, and physician-administered drugs. * * * Additional details on recent expenditure growth in Part B and the impact of growth in physician-related spending are available on the CMS website . Every year since 2002, in response to this rise in spending, the statutory update formula would have operated to impose payment cuts. In 2002, an update of negative 4.8 percent was applied to payment rates. To avoid further payment reductions, Congress intervened and temporarily suspended the requirements of the formula in favor of specific, statutorily dictated updates for 2003 through 2006. In passing these measures, Congress did not adjust the target, further increasing the gap between actual spending and the targets, and exacerbating the already difficult situation. As a result of continued rapid growth in utilization of services, coupled with legislative action to eliminate the payment reductions, Part B spending has increased more rapidly than had been forecast, and beneficiary premiums for Part B services have increased as well.

The American Medical Association immediately began its grass roots campaign against the proposed reduction. CMS likely will finalize the rule in October.

CMS also proposed changes yesterday to Medicare payments to outpatient hospital departments and ambulatory surgical centers (ASCs). CMS proposes to modify its payment policies for ASCs and increase by 14 the number of procedures that Medicare will cover when performed at ASCs.
Due to proposed changes in outpatient hospital care payment policies, “CMS estimates that hospitals will receive an overall average increase of 3.0 percent in Medicare payments for outpatient department services in 2007.” The CMS press release further explains that

In order to promote greater value in Medicare hospital outpatient services, the rule proposes to tie payment rate increases to the reporting of quality measures beginning in 2007. In the approach proposed in the rule, hospitals that report quality measures for purposes of the update in the inpatient prospective payment system (IPPS) would receive a full update on outpatient payments as well. Those hospitals required to report quality measures for inpatient services in order to receive the full IPPS update, but fail to do so, would receive the OPPS update minus 2.0 percentage points.