Storm Surge

November 15, 2005

Will Medicare payments to physicians be Hurricane Katrina's next victim?

Hurricanes Katrina and Rita continue to upend and destroy, months after their winds and rain subsided. Their next victims may be a number of federal programs, including Medicare.

Before the hurricanes took deadly aim at the Gulf Coast, Congress and the federal bureaucracy were struggling to pay for President Bush's large spending programs. With the U.S. economy continuing to expand, and consumer confidence rising, most leaders in Washington were willing to accept more red ink in the federal deficit. Through most of the summer, it appeared important programs like Medicare were safe from major cuts.

Then came Katrina and Rita.

The storms devastated the Gulf Coast, and the damage to oil production may drag down the economy, and thus tax receipts, for months.

In the aftermath of the storms, the government committed to paying $62.3 billion in recovery efforts, plus another $8 billion in hurricane-related tax cuts. That's just for starters. The non-partisan Congressional Budget Office projects the total tab in direct aid to rebuild and repopulate the Gulf Coast will near $200 billion. If that happens, the deficit could reach almost $700 billion.

It's all been put on our national credit card, to be covered by interest and paid off in the future.

That prospect created a divide among Republicans: those who still believe "deficits don't matter," as Vice President Cheney famously said, and those who believe they do. The former think a strong economy will eventually erase the deficit; the latter say the deficit will hurt the economy.

How will this affect Medicare? Millions of Americans need this safety net. Physicians who provide care are angry about the way they've been treated, and if Congress decides again to take a chunk out of their wallets, more physicians are likely to leave the system.

As one Midwestern physician I met recently told me, "When I work real hard to save Granny, Medicare sends $40 my way, months after providing the service, if I'm lucky. It's not worth the effort."

It's a complaint worth remembering as we reach the end of the year and begin the annual Congressional debate called "How Little Can We Get Away With Paying Physicians for Providing Medicare Services?"

Last year's 4.5 percent cut in physician services turned into a 1.5 percent increase - forced by alliances between physicians and seniors, the latter fearful of losing their doctors. If Congress does not act by this year's end, an automatic 5.2 percent cut in physician reimbursement takes effect.

This annual debate is humiliating to physicians. And new "pay for performance" and mandatory disclosure requirements make it worse.

There is growing pressure to do something beyond the annual tinkering. "We can't just keep kicking the can down the road," Senate Finance Committee chairman Chuck Grassley (R-Iowa) told physicians at an AMA meeting in March 2005.

Grassley has seen the future and is scared. The 2003 prescription-drug law contained a little-discussed "cost-trigger." That trigger is likely to be automatically pulled twice in 2006 and 2007, when the percentage of Medicare funds from general tax revenues grows beyond 40 percent. That will require Congress to enact major cuts in Medicare costs and revenue increases (also known as "taxes"). Scariest for politicians: the taxes and cuts must be enacted in 2008, a presidential election year. So the pressure increases to do something now.

Could your practice sustain a significant cut in Medicare payments, or would it force you to quit the system? Write to me at kkarpay@physicianspractice.com. The views expressed here are my own, and do not necessarily reflect those of Physicians Practice.
This article originally appeared in the November/December 2005 issue of
Physicians Practice.