Medicare changes for 2006: More bad news for MDs, patients

May 1, 2005

Washington--Both physicians and Medicare beneficiaries are in for a jolt next year, according to government officials who indicated in late March that Medicare will slash physician payments by 4.3% in 2006 and slap beneficiaries with an $11 per month premium increase.

The Centers for Medicare & Medicaid Services said both actions are necessary because Medicare spending for physicians' services jumped 15% last year, which CMS Administrator Mark B. McClellan, MD, said was cause for "great concern."

Beneficiaries pay a monthly premium of $78.20. Payments will increase to $89.20 for 2006, a 34% boost from $66.60 in 2004. Herb B. Kuhn, director of the CMS Center for Medicare Management, said beneficiaries will "have access" to the new subsidized prescription drug program, but that will carry premiums averaging $35 monthly.

"While reimbursement will likely be cut by over 30% under the current formula during that time period, it is estimated that costs for providing services will rise by close to 20%. Such cuts will further inhibit each physician's ability to provide services to Medicare beneficiaries, as many physicians will simply be unable to afford to treat Medicare patients," Dr. Gee told the House Ways and Means Health Subcommittee.

According to CMS, the sharp increase in Medicare spending last year is attributable to five areas:

Because of a controversial new policy instituted last year, drug payments declined and drug administration fees increased, which CMS estimated would approximately offset each other. However, CMS said it is further studying that issue, because "the significant increase in drug spending despite large reductions in drug prices suggests that utilization of physician-administered drugs increased substantially."

Kuhn said the numbers contained in his letter are preliminary and subject to revision as spending trends are examined more closely.

He said the increase in the number of beneficiaries between 2003 and 2004 accounts for a small fraction of the spending growth. Changes under the Medicare Modernization Act, such as the mandated 1.5% increase for physicians in 2004 and the "floor" that was established for the geographic practice cost index for physician work, accounted for about 20% of the spending growth.

Addressing real problems In his February testimony, Dr. Gee pointed out that the 1.5% increase was mandated by Congress for 2004 and 2005 to account for problems with the SGR, but he added that Congress failed to act on the underlying problems in the formula.