Understanding the Physician Pay Problem

November 5, 2010

Understanding the Physician Pay Problem

By Rex Stanley, RN, CMM, CPC, CHBC, CRS, CHCC, PCS

On November 30, physician pay is still due to plunge 21.2 percent and cumulatively 40 percent by 2016, while
the cost of business is expected to soar 20 percent in that time. The Sustainable Growth Rate (SGR) – an
accumulation of seven years of Congress’ short-term fixes on a long-term problem – is flawed yet Congress

continues to treat the cancer with Band-Aids®.


Twice this year, anticipating another reprieve from Congress, CMS directed contractors to temporarily hold
paying claims, causing uncertainty and cash flow problems in an already dicey economy. The problem is the
SGR, applied by the Centers for Medicare & Medicaid Services (CMS), is flawed and heavily weighted on the
GDP, not on actual healthcare practice costs.


The logic behind the SGR made some sense when it was established in 1997. To maintain budget neutrality, a
relative value scale was instituted to pay physicians the true value of their services, regardless of differences in
complexity of services provided and geographic costs of living.


The factor used to convert the relative value to dollar amounts resulted in less or more pay for physicians than
intended, so the rate was adjusted accordingly. To restrain Medicare’s total expenditures, Congress created the
SGR to modify the conversion factor. During the first six years, physicians received an average increase in pay
of two to three percent. During the past seven years, however, the SGR resulted in an average loss in pay of the
same percentage and because it was never enforced, accumulated to more than 21 percent over time.


Doctors are frustrated, angry and up in arms to protect their practices from Medicare’s volatility. Some doctors
are already limiting Medicare patients and others are seriously considering not accepting new Medicare patients,
risky business for everyone with more baby boomers becoming eligible every day.


In response to temporary rate reductions, physicians are delaying payments for supplies, rent and other
expenses and are taking out loans or lines of credit to pay bills when possible, in the tight credit market. In
addition, some doctors have been forced to delay paychecks or even furlough or lay-off employees.


Window of Opportunity


Several recommended fixes were proposed and dropped from healthcare reform bills over the past year. All
have associated costs and none are easy or necessarily palatable. But the fact that Congress delayed the
physician pay cut until after the fall elections and before the end of the year when the issue would roll over to a
new Congress, makes me optimistic that something will be done to solve the SGR problem this year. There’s a
window of opportunity between Thanksgiving and Christmas when lame ducks who want to fix the SGR may
push for a solution, damn the political consequences.


Also, the fact that Congress upped reimbursement by 2.2 percent encourages me to think there may be some
small increase in pay – say one to two percent – over the next two to five years for physicians. It’s not a
permanent solution, but it’s better than taking a stab at the problems several times like Congress did this year.


To shore up their defenses during this time of uncertainty, physicians and practice administrators should
complete an impact analysis to determine where they stand when the hit comes. It is also more important than
ever to identify resources, such as IT staff, to develop new reports, software or economic models to help with
financial projections.

Considering the current political atmosphere and the distaste for being on either side of this argument, I suspect
freezing physician pay for five or 10 years may be the most likely scenario. If physicians put their heads together
with economists to really investigate the situation thoroughly, devise some recommendations and fix it, they may
just cure this long-term illness for good.


Rex Stanley, RN, CMM, CPC, CHBC, CRS, CHCC, PCS, Chief Executive Officer, Unicor Medical, Inc., in Montgomery, Ala., is a member of HBMA’s ICD-10 committee. He can be reached at rstanley@alphaii.com.

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