Medicare’s payment update formula for physician reimbursement has been seriously flawed since its inception in the late 1980’s. CMS Administrator Tom Scully, who oversees the program, has admitted as much in numerous public appearances. AMGA recommends a two-step process to correct this continuing infringement upon quality patient care:

(1) Immediate relief through Congressional discretionary authority implementing MedPAC’s recommended 2.5% increase for physicians’ FY2004 and FY 2005 payments. While not covering the rising costs of care, this interim relief enables Congress to develop support for a permanent remedy to the update formula.

(2) Once immediate relief is provided, Congress should develop and enact a new physician update formula that parallels the payment update calculation used for other Medicare services, such as hospital inpatient services. This formula should encompass three factors: an adjustment for adequate payment levels; an estimate of input price inflation; and an update adjustment for growth in multifactor productivity.

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