Doctors fear ill tidings in fiscal-cliff drama

In the pileup of unfinished fiscal business facing Congress and President Obama as the year winds down are two matters making doctors and health-care executives particularly nervous.

If the Washington impasse remains unbroken and politicians fail to fix what is widely viewed as a flawed payment formula, Medicare will start paying doctors 26.5 percent less on Tuesday.

Anxiety over the "doc fix," which is linked to a reimbursement method in a 1997 deficit-reduction law, has been an annual rite for a decade.

This year the fear is heightened by an additional 2 percent - or $11 billion - across-the-board cut in all Medicare payments in fiscal 2013 that will kick in if the White House and Congress fail to agree on alternative spending reductions as required by a 2011 budget law.

"Doctors are going over their own fiscal cliff," said Richard Schott, a cardiologist with Cardiology Consultants of Philadelphia.

"A very large number of our patients are insured by Medicare. Based on that, it becomes a real fiscal crisis" for physicians, said Schott, also president of the Pennsylvania Medical Society.

It's difficult to pin down specifics, but the American Academy of Family Physicians estimated that a 26.5 percent reduction in Medicare payments would amount to a loss of $27,000 a year for the typical family doctor and $80,000 a year for a three-member practice.

The bulk of a 2 percent Medicare cut under the Budget Control Act of 2011 would fall on hospitals.

The University of Pennsylvania Health System estimated, for example, that it would lose $23 million in annual revenue if Medicare rates went down 2 percent. The three-hospital system reported $217.2 million in operating profit on $3.6 billion in total revenue in the year ended June 30.

The Einstein Healthcare Network could lose an estimated $7.6 million in revenue, based on its Medicare revenue reported for fiscal 2012. But that system had narrower profit margins, reporting operating income of just $2.5 million in fiscal 2012.

A Philadelphia health-care consultant said the 2 percent cut would be a financial jolt for some hospitals, most of which lose money on Medicare.

"If it goes on for any length of time, it might result in downgrades" in bond ratings, said Alan Zuckerman, president of Health Strategies & Solutions Inc.

The 26.5 percent cut in physician payments would be "catastrophic," Zuckerman said.

The idea behind the 1997 payment formula was to create a "sustainable growth rate" for Medicare reimbursements by linking them to the rate of change in the national gross domestic product. The formula stopped working as envisioned during the 2002 recession and doctors faced a 4.8 percent cut.

Congress came up with the "doc fix" to prevent the reduction and has been implementing it ever since.

Larry Downs, chief executive of the Medical Society of New Jersey, said the reimbursement formula has been fixed in early January a couple of times. "There are significant additional costs to the system when that happens," he said, because claims processed at the lower rate must be reprocessed.

A long-term solution has eluded lawmakers.

"There isn't a simple fix," said Richard C. Wender, chair of the department of family and community medicine at Thomas Jefferson University Hospitals.

Fixing the payment formula means dealing with the unsustainable growth in health-care spending, Wender said.

"Some fix will go in. It will either be across-the-board, not-very-thoughtful approaches, or we are going to have to dive deep and get the best brains together and work collaboratively," Wender said, "and come up with solutions that make sense for the health of the nation."