Florida pain specialist Lynne Carr-Columbus spends thousands each year on a variety of marketing efforts and salesmanship, including an in-practice store, Web site, and other promotion. She needs to find innovative ways to generate patients and revenue, she says, if only to make up for the Medicare cuts of up to 20 percent that she estimates her practice has absorbed since 1994.

Now, though, Medicare is about to undergo fundamental change in the way it pays doctors. And Medicare is in the hands of physicians like Carr-Columbus who depend on Medicare revenues. At least that's what the program's overlords want you to believe. Primed by the historic Medicare law passed in 2003 — the Medicare Prescription Drug, Improvement and Modernization Act — federal officials have ushered in a remarkable number of demonstration programs and pilot projects involving thousands of practices throughout the nation.

Physicians who participate will get a taste of the future of Medicare, which is on a fevered path to link better care to better payments — a concept that is loosely known as "pay for performance." The agency also wants to usher in electronic medical records (EMR) and other health information technology advances as quickly as possible.

Everything from how well diabetics are managed over time, to how to prod physicians like you into making investments in health information technology is under study. And, as the saying goes, Uncle Sam wants you.

Sean Tunis, the chief medical officer for the Centers for Medicare and Medicaid Services (CMS), urges physicians to "be proactive about seeking opportunities" to join in the pilots and demonstrations. Ultimately, your own wallets (and your patients') will benefit, he says.

"The performance of physicians, at the individual and aggregate level, will be an increasingly important determinant as to how they are compensated," Tunis says. "I don't know that the average doctor in a small practice is aware of moves toward pay for performance, but increasing numbers of payers are adopting this.

"Five years from now, it will be a big part of the environment of practices, maybe even before that," he predicts.

Medicare is "trying to attach a greater proportion of payment to coordinated care, preventive care — good solid primary care. That will help those physicians who have been undervalued and underpaid in the current system."

What's wrong

Undoubtedly, many physicians do feel unappreciated by Medicare, and for them, inadequate reimbursements are the biggest reason. But this year their concerns are being aired against a backdrop of discussions on reforming Social Security.

For all the debate about Social Security's long-term solvency problem, Medicare is in much deeper trouble, according to the overseers of both programs' trust funds. In their annual report at the end of 2004, the trustees projected that in 20 years, Medicare's annual costs are expected to surpass Social Security's, and continue climbing to equal 14 percent of the gross domestic product by 2078. In that year, Medicare costs would be double those of Social Security's, the trustees said.

So while the trustees are projecting that the "financing arrangements in current law" are "inadequate" to continue funding Medicare, many groups, including medical societies and MedPac, an official Medicare advisory panel to Congress, are angling for a change from the current physician payment system. What has drawn most of their fire is the sustainable growth rate (SGR) calculation that has been used to determine payments since 1999.

The SGR, which takes into account all physician payments since 1996, allows for some growth in spending. But its purpose is to "apply financial brakes whenever spending for physician services exceeds predefined spending targets ... by reducing physician fees or limiting their annual increase," says Bruce Steinwald, director of healthcare, economic and payment issues for the Government Accountability Office (GAO).

The SGR formula resulted in annual fee increases of 2.3 percent to 5.5 percent from 1999 to 2001. But in 2002, the system triggered an automatic decrease of nearly 5 percent. And because costs were projected to continue increasing, the Medicare trustees have estimated that this payment formula will result in annual cuts of about 5 percent for each of the next seven years, beginning in 2006.

In 2003, Congress intervened — temporarily. So instead of projected cuts of 5 percent in 2003, 4.5 percent in 2004, and 3.3 percent for this year, Congress specified in the Medicare Act that physician payments would be increased by at least 1.5 percent annually until 2006. And as 2006 draws ever closer, "the honeymoon is almost over," in the words of Mary Frank, president of the American Academy of Family Physicians (AAFP).

AAFP and a host of other groups are working to convince Congress to step in again — not only to delay the impending cuts, but also to change the way payments are calculated.