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WASHINGTON - The current Medicare physician payment formula is fatally flawed and must be replaced with one that reflects the reality of practice cost increases, the American Medical Association (AMA) testified to Congress' Senate Finance committee today. The current Medicare physician payment formula is based on the ups and downs of the economy, not the health care needs of America's seniors.

"Over the next eight years Medicare will make deep payment cuts to physicians, nearly 40 percent, while practice costs continue to increase about 20 percent," said AMA Board Chair Cecil Wilson, MD. "Medicare's physician payment system is broken - and it's time to fix the underlying cause, the flawed formula, and protect the Medicare program for seniors who rely on the program for health care now, and baby-boomers who begin entering the program in 2010."

Congress' own advisory committee on Medicare, MedPAC, recommends that Congress override next year's planned payment cut of 10 percent and instead update payments based on practice cost increases. This increase, 1.7 percent in 2008, will help physicians keep practice doors open to Medicare patients and make investments in health information technology and new medical equipment that assist with quality improvements.

"Since 2002, the AMA has worked with Congress to achieve 11th-hour interventions to ward off steep payment cuts and preserve seniors' access to care," said Dr. Wilson. "MedPAC has once again laid out a compelling case for repealing Medicare's flawed physician payment update formula, and we call on Congress to enact legislation this year to set this process in motion."

In addition to reiterating the case for repeal, MedPAC, at Congress' request, also reviewed other alternatives. The AMA does not support MedPAC's second alternative, which would expand the Medicare spending limit currently applied only to physicians to hospitals and other Medicare providers.

"No amount of tinkering can fix what is broken beyond repair," said Dr. Wilson. "Instead of expanding a defective system to other providers, Congress should ensure that physicians are reimbursed like every other provider, based on practice costs."

"Congressional intervention is critical, as doctors remain concerned that cuts could harm seniors' access to care," said Dr. Wilson. "Nearly half of physicians surveyed told the AMA a cut of five percent - half of next year's cut - would force them to limit new Medicare patients. According to MedPAC, already about 25 percent of Medicare patients seeking a new primary care physician have problems finding one, and for the first time this year they report that the number of Medicare patients having problems finding a new specialist was higher than the rate of privately insured patients."

The AMA thanks Chairman Baucus and Ranking Member Grassley for holding this important hearing, and urges Congressional action to reform the Medicare physician payment formula this year.