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Lawsuit Demands Geographic Parity in Medicare Physician Pay

Cheryl Clark, for HealthLeaders Media, April 15, 2009

Medicare is underpaying physicians between 10% and 25% in 175 higher-cost counties across the nation, creating a "public health crisis" in which too few doctors accept the federal program, resulting in jeopardized patient care.

That's the claim in the latest volley of a California class action lawsuit against the Department of Health and Human Services. The claim argues for a change in an allegedly antiqued formula affecting thousands of physicians in at least seven California counties, and many more in the other 168 that would like to join in. First filed in 2007, and rejected last year, the case is now under appeal.

"Between 2001 and 2007, Medicare underpaid these providers (nationally) nearly $2.5 billion," says Dario de Ghetaldi, the Millbrae, CA, attorney who filed the case. In Santa Cruz County, for example, doctors receive 25% less for taking care of a Medicare patient under Part B than their counterparts in neighboring San Mateo and Santa Clara counties, despite similar costs of practicing. As a result, many doctors are just saying no to any new Medicare patients, the claim says.

For all seven counties in the state involved in the case (Santa Cruz, Sonoma, San Diego, Marin, Santa Barbara, San Luis Obispo, and Monterey), the amount is about $340 million in underpayments, the most of any other state, de Ghetaldi said.

California is closely followed by Texas with $246 million; North Carolina, $176 million; Minnesota, $164 million; Ohio, $159 million (all in Cuyahoga County); Florida, $150 million; Virginia, $126 million; Wisconsin, $111; Colorado, $83; and Massachusetts, $81 million, according to the lawsuit.

Ellen Griffith, spokeswoman for CMS, declined to comment on pending litigation. But she said changing geographic adjustments cannot change the size of the total Medicare reimbursement pie. "If we give these counties more, we'd have to give other counties less," she said.

The disparity evolved because federal physician reimbursement formulas are based on averaged costs for each metropolitan statistical area (MSA) known as the Geographic Practice Cost Index, or GPCI. The complex formula is much different than that for hospitals.

It's based on the regional average cost for a doctor to rent an office space, employ staff, buy supplies, and purchase malpractice insurance.

In California the federal formula established MSA 99, a "rural" region with 47 counties, such as Imperial, Modoc, or Inyo. But it also includes the claimants: Sonoma, Santa Barbara, Santa Cruz, San Luis Obispo, Marin, Monterey, and San Diego counties, whose populations and costs have grown exponentially, de Ghetaldi claims.

San Diego County alone wants back an underpayment of $155 million, nearly half the state's alleged underpayment.

The lawsuit wants all of the county health systems that employ physicians be reimbursed for underpayments they received, and that all physicians who were underpaid be retroactively reimbursed.

Federal officials acknowledge the disparity, but are reluctant to change the formula because it could mean reducing payments to doctors in many rural areas, where physician shortages are well documented, de Ghetaldi said.

For example, a report from the General Accounting Office in June 29, 2007 was titled, "Payments for Variation in Practice Costs Should Be Revised" using an approach "uniformly applied to all states," and based "on the most current data."

This Thursday, April 16, de Ghetaldi's brother Larry de Ghetaldi, MD, an emergency room physician in Santa Cruz, as well as representatives of the California Medical Association, will join representatives of House Speaker Nancy Pelosi and California Congressman Sam Farr in a visit to Washington to argue for quicker remedies. The lawsuit may drag on, further jeopardizing Medicare patients' care, de Ghetaldi said.

De Ghetaldi's original lawsuit in 2007 was rejected by the U.S. District Court in San Francisco, in part on grounds that the case was filed on behalf of counties, not individual doctors. Plaintiffs must be individuals, the court ruled.

DeGhetaldi said he initially tried to get physician groups to put their names on court documents, but many balked. "All the ones we talked to, before we filed the claims, were afraid of retaliatory audits by Medicare," he said. Since then, he said, he found other legal arguments and those are in his appeal, which he argued before the Ninth Circuit Court of Appeals in San Francisco on April 13.

The hearing date was expedited, de Ghetaldi said, because the court accepted the argument that the situation has caused a "public health crisis." Too many physicians, especially in important specialties, are unwilling to take Medicare patients in key counties throughout California because of the disparity, he said.

Not only are these doctors financially affected by the unfairly low reimbursements, "that failure has resulted in a widespread public health crisis as the number of physicians in the affected counties who still provide services to Medicare beneficiaries has diminished dramatically," de Ghetaldi wrote in his appeal.

Such a situation has been well documented in Santa Cruz County, where newspaper reports say seniors must get care at Planned Parenthood or the emergency room because there are so few doctors who still accept Medicare.


Cheryl Clark is senior quality editor and California correspondent for HealthLeaders Media. She is a member of the Association of Health Care Journalists.
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