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Physicians Brace for Medicare 'Doc Fix' Cliff

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Doctors who treat Medicare patients are bracing for what could be massive cuts for their practices, if Congress fails to reach a deal on budget cuts by New Year's Day.

The front page of the American Medical Association's website is counting down the hours to "crippling cuts to the Medicare program" which could see physician payments in 2013 reduced by nearly one-third.

"Think about an internal medicine practice, a rheumatology practice," said Dr. Ardis Hoven, president-elect of the American Medical Association, AMA. "If you're taking care of a large elderly population, the Medicare implications are significant."

With no entitlement reform deal, the "fiscal cliff" cuts Medicare provider fees by 2 percent starting January 1st. On top of that, doctors face a 27 percent reimbursement cut, under a 1990s-era payment formula known as the sustainable growth rate, or SGR, which ties physician Medicare reimbursement rates to economic growth.

"It's supposed to be a budget control thing," explains Les Funtleyder, health care fund manager at Poliwogg. "It's never actually controlled the budget, because it's never actually been in place."

The problem with the SGR is that health care costs have outpaced economic growth for years, triggering reimbursement cuts. For nearly a decade, Congress has averted the cuts by enacting a so-called "Doc Fix" temporary funding measure, usually at the 11th hour.

(Read More: Medicare Premium Increase Plan Redefines 'Well-Off')

"They've been fixing the doc fix since they put in the SGR," said Funtleyder. "It will get fixed."

The big question is how quickly?

Uncertain Timeline

The American Academy of Family physicians calculates that without a Doc Fix, the 2013 cuts would cost the average family physician a $27,000 drop in Medicare payments, and an average of $80-thousand for a practice of three primary-care doctors.

The Centers for Medicare and Medicaid Services notified doctors of the potential cut, but said that payments may not be impacted if Congress acts before mid-January.

"Electronic claims are not paid sooner than 14 days (29 days for paper claims) after the date of receipt," CMS advised in its notice, adding that the agency would provide a further update "on or before January 11, 2013."

If there is no Doc Fix deal in time, it wouldn't be the first time a reimbursement cut went through only to be rolled back. Still, the uncertainty puts a strain on doctors' offices, AMA's Ardis Hoven said, making physicians reticent to take on Medicare patients.

"Practices have had to take bridge loans. They had to reduce the number of days they would see patients in the office, because they had their overhead they had to maintain," Hoven said, adding that this ultimately impacts the 47 million patients on Medicare.

"It's very disheartening, because in their souls they know the right thing to do," she said.

Support For Permanent Fix

Analysts say there is bi-partisan support in both houses of Congress for a long-term fix to the SGR. Both sides have reportedly floated plans during the current budget negotiations, but the impasse on an overall deal has impeded the chances of approval.

(Read More: GOP 'Cliff' Plan: Cut Medicare and Social Security)

"There is pretty widespread agreement that something has to change," said Ipsita Smolinski, principal with health care investment advisory firm Capital Street. "The problem is that it's so costly to reform the system."

The Congressional Budget Office has estimated it will cost upwards of $300 billion over the next ten years to resolve the problem. It has been easier to find a way to pay for one year at a time.

"They'd much rather do the less-controversial patch versus creating a $300 billion type of package and paying for that," said Smolinski.

Still, physicians' groups say they will continue to press Washington for a long-term change in 2013, despite the dysfunction that has virtually paralyzed Congress the last couple of years.

"They have what we call in medicine, multiple co-morbidities. That means they have lots of things wrong with them," said Dr. Hoven. "They are going to have to remy them in a meaningful way."

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