The Bush administration on Tuesday proposed a federal rule that would cut Medicare reimbursements for physician services by 5.1% for 2007, the New York Times reports. Administration officials said the cut is necessary to offset faster-than-expected increases in Medicare spending for physician services, the Times reports (Pear, New York Times, 8/9). Medicare reimbursements to physicians increased 10% in 2005, and reimbursements for physician services and hospital outpatient services combined are expected to increase 10.6% in 2007, according to the Wall Street Journal (Zhang, Wall Street Journal, 8/9). The government estimates Medicare will pay a total of $61.5 billion to 875,000 physicians and other providers in 2007. CMS Administrator Mark McClellan said the rise in Medicare spending on physician services is the result of "increases in the number and complexity of services furnished to Medicare beneficiaries, including more frequent and intensive office visits, and rapid growth in the use of imaging techniques, laboratory services and physician-administered drugs." According to the Times, the increased spending "directly affects beneficiaries because their premiums are set each year to cover about 25% of projected spending" for Medicare Part B, which covers physician services and other outpatient care. McClellan said Part B premiums likely will increase 11% to $98.40 for 2007. He said it would cost the federal government $13 billion over five years if Congress acts to block the proposed cuts, as it has done in past years (New York Times, 8/9).

Hospitals
McClellan also announced a proposed rule that would increase Medicare reimbursements for outpatient services by 3% for hospitals that report quality care measures to the government (Wall Street Journal, 8/9). Medicare reimbursements for outpatient services performed in hospitals increased almost 12% in 2006, and payments are expected to increase 9.2% in 2007, McClellan said. He said hospitals need to provide the government with more data about the services they provide to beneficiaries because there is no clear evidence that increased treatments result in better care (Freking, AP/San Francisco Chronicle, 8/9). In addition, the Bush administration announced a proposal that would require specialty hospitals to provide the government with information about their "investment and compensation relationships with physicians." Hospitals specializing in cardiac, orthopedic or surgical care would be required to notify patients of any "investment interest" a staff physician has in the hospital. Hospitals that do not comply with the disclosure requirements would face civil penalties of up to $10,000 per day. CMS officials said physicians who invest in hospitals could be violating federal law if they receive financial returns that are disproportionate to their investments (New York Times, 8/9). CMS will accept comments on the proposals for 60 days, the AP/San Francisco Chronicle reports (AP/San Francisco Chronicle, 8/9).

Comments
McClellan said, "We need to get out of the vicious circle of rapid growth in utilization and spending and falling real payment rates," adding, "I'm very concerned about our current system. I don't think it's sustainable" (Wall Street Journal, 8/9). Donald Marron, acting director of the Congressional Budget Office, said there is significant evidence to suggest that "a reduction in payment rates leads physicians to increase the volume and intensity of the service they perform." He added that some physicians "are likely to respond to continuing reductions in payment rates by declining to participate in the Medicare program" (New York Times, 8/9). Cecil Wilson, chair of the American Medical Association's board of trustees, said, "Seniors who rely on Medicare and the physicians who care for them are stuck wondering if 2007 will be the year access to care erodes as we wait for congressional action to stop the Medicare payment cuts." Wilson said proposals to reduce payments for imaging services in physician offices could harm beneficiaries' ability to receive an accurate diagnosis. He added, "It is important to look not just to the increase in use of such services but to their ability to provide patients with healthier outcomes, such as using CT scans and MRIs to pinpoint and stage various types of cancer" (AP/San Francisco Chronicle, 8/9).