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$3.2B Lawsuit Targets Medicare Underpayments

 |  By cclark@healthleadersmedia.com  
   February 24, 2011

Medicare's antiquated system knowingly hurts patient care by underpaying doctors in 200 counties in 32 states, according to a $3.2 billion lawsuit filed by seven California counties and physicians, who want to force the agency to fix the system.

The court fight, which began in 2007, involves the plaintiffs' contention that the federal fee schedule underpays physicians in certain counties by classifying those regions as rural, lower-cost counties, when they are in fact very expensive places to provide care, often in areas that are now very urbanized.

According to a statement from the physicians' lawyer, Dario De Ghetaldi, the inequitable formula, called the GPCI or geographic practice cost index, results in physicians and other healthcare providers being paid between "12% and 24% less than their colleagues in neighboring, demographically similar counties for providing exactly the same services."

That's because the practice cost index uses a formula that assumes those areas have costs of doing business  – such malpractice insurance, supplies and costs of labor – that are similar to lower expenses seen in rural areas.

"This is truly a national problem," De Ghetaldi said in a statement. Because so many physicians no longer want to accept Medicare patients, underpaid counties now have a critical and worsening shortage of healthcare providers willing to accept Medicare beneficiaries.

"These inequities are causing a reduction in access to much needed medical care for hundreds of thousands of Medicare beneficiaries in many areas of the country, severely impacting the quality of health care to which our disabled and elderly populations are entitled."

The money that would have gone to these underpaid physicians instead is used "to fund windfall overpayments to physicians and practitioners in other counties in those same states." An estimated $620 million was overcharged to beneficiaries, who have to pay 20% of the total charge.

The GPCI boundaries for those fee schedules were first defined in 1966, and have not been updated since, "despite significant changes in demographics (and) despite numerous requests from suppliers and state medical associations for restructuring," De Ghetaldi says. 

The plaintiffs include the counties of Santa Cruz, Sonoma, San Diego, Marin, Santa Barbara, San Luis Obispo, Monterey; a physician, Theodore Mazer, MD; and Wolbers and Poree, a medical corporation.

Of the 38 states, the lawsuit says, California is the hardest hit, with more than $508 million in underpayments to doctors in 10 counties over 10 years. 

But the disparity affects other states as well. For example, doctors in Cuyahoga County, where Cleveland is located, have underpayments of $240 million and is said to be the hardest hit. San Diego County in California is second hardest hit, with underpayments of $225 million.

According to Exhibit 4 of the lawsuit, several states have lost more than $100 million over the last 10 years in addition to California. They are Colorado, $111.8 million; Florida, $271.2 million; Massachusetts, $134.6 million; Minnesota, $205.5 million; North Carolina, $218.5 million; Ohio, $231.6 million; Texas, $195.2 million; Virginia, $185.4 million and Wisconsin, $102.9 million.

The lawsuit points out that federal agencies have issued several reports pointing to the problem. For example, in 2007 the General Accountability Office send a report to the chairman of the Subcommittee on Health of the House Committee on Ways and Means saying that 447 counties, more than 14% of those in the U.S., received payments that were either over or under what they should have been.

The GAO identified four modifications that would "substantially reduce or eliminate relative underpayments to physicians" and "would generally impose a minimal amount of administrative burden on CMS, Medicare carriers and physicians."

Another five federally funded or sponsored studies have identified other ways that the Medicare Part B structure might more accurately reflect local costs of providing care. The Medicare Payment Advisory Commission and the Urban Institute have also "identified a number of ways in which payment accuracy can be improved without significantly increasing administrative expenses."

"Despite these six studies, (the Department of Health and Human Services) has taken no action other than to commission further study."

In fact, not one, but two Institute of Medicine committees are now holding hearings in advance of two reports anticipated later this year on the same topic.

The lawsuit, a first amended complaint of a case that was first launched two and a half years ago, was filed again against HHS Secretary Kathleen Sebelius in the United States District Court, Northern District of California.

DeGhetaldi says that the lawsuit seeks to represent all 200 underpaid counties and hopes to receive certification for a class action.

Plaintiff Theodore Mazer, MD, a San Diego ear nose and throat specialist, says he "decided to stick my neck out because we have been trying for 10 years, through regulatory and legislative channels, to get this fixed but it has been stagnating. We need to move this to where there is no question of who has the standing to sue to get it corrected."

He adds that it isn't just Medicare payments that are affected by these unfair geographic assignments. In many other regions of the country such as San Diego, "Every other payer follows Medicare, compounding the problem. And what that means is that doctors simply can't afford to continue to pay the overhead for their offices" in those regions of the country.

The looming sustainable growth rate formula, which threatens to cut physician's Medicare reimbursement by 27% if it is not repealed or postponed by January, 2012, makes the GPCI issue that much more urgent, he says.

 

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