Statement of the College of American Pathologists

The College of American Pathologists (CAP) is pleased to submit this statement for the record of the Subcommittee on Health’s hearing on the Medicare physician fee schedule formula and physician payments.  The College is a medical specialty society representing more than 16,000 board-certified physicians who practice clinical or anatomic pathology, or both, in community hospitals, independent clinical laboratories, academic medical centers and federal and state health facilities.

The CAP first would like to applaud Subcommittee Chair Nancy Johnson for her support of improved Medicare payments for physicians and her strong statement last week regarding the flawed formula now used to calculate annual updates to the Medicare physician fee schedule.  The CAP also would like to express its appreciation to Ways and Means Chair William Thomas and other members of the full committee who have voiced the need to address the important issue of Medicare physician payments.  We look forward to working with all of you so that Congress can act quickly to lessen the damage caused by this year’s precipitous decline in Medicare physician payments and replace the current update formula with one that more accurately reflects true practice costs.

The 5.4 percent reduction in physician payments that began January 1, 2002, affects pathologists profoundly and exacerbates existing financial pressures brought on by increasingly complex and costly regulatory requirements and rising liability insurance rates.

The January 1 reduction in payments is the fourth payment cut—and the largest—since Medicare instituted its physician fee schedule a decade ago.  Since 1991, Medicare physician payment rates have risen an average of only 1.1 percent annually, or 13 percent less than the annual increase in practice costs, as measured by the Medicare Economic Index.  Further, the Jan. 1 reduction comes on top of cuts to pathology services made in the transition to resource-based practice expenses, such as an 11.5 percent drop in payment over four years for the diagnosis of breast cancer, prostate cancer and malignant melanoma.

Pathologists and other physicians cannot continue to sustain the financial pressures the Medicare program has placed upon them.  Compounding the current problem of falling payment rates are numerous new administrative requirements imposed on Medicare providers in recent years.  For example, documentation requirements necessitated by Medicare program integrity initiatives and various provisions of the Health Insurance Portability and Accountability Act of 1996 have created substantial new paperwork burdens in laboratories and physician offices, and more are expected in coming years.  These requirements raise the cost and complexity of providing care, but come with no additional compensation.  Further adding to the burden on providers are rising professional liability insurance rates and the cost of technological advances critical to maintaining state-of-the-art medical care.

The 2002 payment cut stems from a flawed Medicare update formula—the “sustainable growth rate,” or SGR.  This system inappropriately reflects downturns in the general economy and that, along with data errors by the Centers for Medicare and Medicaid Services, have short-changed physicians by $15 million since 1998.  The Medicare Payment Advisory Commission (MedPAC) warned last year that significant cuts in 2002 “could raise concerns about the adequacy of payments and beneficiary access to care.”  MedPAC adopted a recommendation that Medicare replace the SGR with a system based on estimated changes in physician practice costs less an adjustment for growth in multi-factor productivity (labor, supplies and equipment—not just labor, as is now the case).

MedPAC’s concerns regarding access must not be taken lightly. Experiences with Medicare+Choice disenrollment and Medicaid patient access give ample evidence of the need to maintain adequate payment to ensure adequate access.  This year’s reduction and future cuts that are likely absent immediate changes to the update system will force some physicians to discontinue accepting new Medicare patients, switch from participating to non-participating provider status, reduce administrative staff, retire early or take other actions to limit their Medicare liability.  It is unfortunate that those same actions likely will jeopardize Medicare patients’ access to care.

The CAP urges Congress to act this year to mitigate the 5.4 percent reduction to the Medicare physician fee schedule, repeal the sustainable growth rate system and replace it with an update formula that accurately reflects increases in practice costs.

The College thanks the Subcommittee for the opportunity to present its views on this important issue and offers its support and continued assistance as Congress moves toward remedying the flawed SGR formula and restoring equity to Medicare physician payments.