Medicare (GPCI) Lawsuit Talking Points

I. GENERAL BACKGROUND FACTS

A. Medicare was formed in 1965 as part of Lyndon Johnson’s Great Society programs and began operations in 1966.

B. Medicare is the largest purchaser of healthcare in the country.

1. In 2009, Medicare paid for medical services for 46.3 million aged and disabled Americans.
2. In 2009, Medicare spent $509 billion on healthcare, with $62.5 billion going to physician services and over $164 billion going to hospital services.

C. Payments to hospitals (or “providers”) are administered by Medicare under “Part A” of the Medicare Act. Payments to physicians and other healthcare practitioners (or “suppliers”) are administered by Medicare under “Part B” of the Medicare Act.

II. NATIONWIDE PROBLEM OF INACCURATE PAYMENTS TO SUPPLIERS

A. Congressional Mandate to Medicare: Make Equitable Payments to Physicians and Other Suppliers Based on Local Costs Relative to National Averages

1. The Medicare statutes require that payments to suppliers for services be made based on local costs of those services relative to the national average of those costs.
2. In order to meet the legislative mandate, geographical “fee schedule areas” (“FSA”) must be defined so that costs within those areas are relatively similar.
3. Otherwise, the use of the statutory payment formula will result in underpayments to suppliers in high cost parts of the FSA and overpayments to suppliers in low cost parts of the FSA.

B. Medicare’s Failure to Keep Definition of Fee Schedule Areas Current

1. There are currently 89 FSAs in the United States.
2. Medicare has not changed any fee schedule area since 1996, and many are unchanged since 1966.
3. In 1996, Medicare set a number of payment accuracy standards and gave assurances that it would modify FSA boundaries when newer data showed changes in costs but it has not done so.
4. There are now almost 200 counties that were once “rural” but that, through changing demographics, now meet Medicare’s definition of “urban.”
5. Those counties should be placed in single-county FSAs but are still paid based in large part on “rural” costs because their higher costs are being averaged with low-cost counties in multi-county FSAs.

C. Comparison to Medicare’s Method of Paying Hospitals

1. Payments to hospitals are based on costs in the metropolitan statistical area (“MSA”) where the hospital is located.
2. There are 433 MSAs, which are defined by the Office of Management and Budget and updated every three years.
3. Santa Cruz County hospitals are accurately paid at the highest rate in the nation, but Santa Cruz County physicians and other suppliers are paid at the lowest rate in California.

D. The Nationwide Problem

1. Payment accuracy is high for hospitals but low for physicians and other suppliers.
2. Ultimately, these inequities are causing a reduction in access to medical care for Medicare beneficiaries in many areas across the United States.
3. Medicare has been aware of the problem since 2001 but has done nothing to resolve it.

III. EFFECT OF THE PAYMENT INACCURACIES IN CALIFORNIA

A. California currently has 10 fee schedule areas based on Medicare’s 1966 maps.

1. Six “urban” counties have their own FSA: San Francisco, San Mateo, Santa Clara, Los Angeles, Ventura, and Orange.
2. Two “urban” counties are combined into one FSA: Alameda and Contra Costa.
3. Suburban Marin County is inexplicably linked with rural Napa and Solano and should be assigned its own separate FSA.
4. The remaining 47 counties in California are combined into a single FSA: “Region 99: Rest of California.”

B. California has been hit hardest by Medicare’s failure to reform its FSA map.

1. California has the highest total underpayment of any state: $500 million.
2. San Diego has the second-highest total underpayment of any county in the country: $225 million.
3. Physicians and other suppliers in 10 California counties (San Diego, Sonoma, Santa Barbara, Santa Cruz, Sacramento, Marin, Monterey, San Luis Obispo, Placer, and El Dorado) receive up to 10% less than they should from Medicare.
4. Physicians in Santa Cruz County receive 24% less than physicians in neighboring San Mateo and Santa Clara Counties for performing the same services.
5. Because of the payment disparities, there are no psychiatrists in San Luis Obispo County who take Medicare patients.

IV. PRIOR ATTEMPTS AT A POLITICAL SOLUTION

A. Since 2000, we have made many formal and informal attempts to achieve an administrative or legislative solution.

B. We have received substantial support from several members of Congress from California, notably Rep. Sam Farr (17th District), Rep. Anna Eshoo (14th District), Rep. Mike Thompson (1st District), and Rep. Lois Capps (23rd District), and Sen. Dianne Feinstein and Sent. Barbara Boxer.

C. These attempts at a political solution have been unsuccessful, and Medicare has no plans in sight for fixing the problem.

V. ESSENTIALS OF THE LAWSUIT

A. The initial administrative claim was filed on March 14, 2007, by five counties: Santa Cruz, Sonoma, San Diego, Marin, and Santa Barbara.

B. The lawsuit was first filed on June 4, 2007, on behalf of seven counties: Santa Cruz, Sonoma, San Diego, Marin, Santa Barbara, San Luis Obispo, and Monterey.

C. On April 9, 2008, the trial court granted the defendant’s motion to dismiss, and we filed an appeal.

D. On September 29, 2010, the Ninth Circuit Court of Appeal reversed the order dismissing the lawsuit.

E. On February 18, 2011, we filed our first amended complaint on behalf of the seven counties and on behalf of two new plaintiffs, Wolbers and Poree Medical Corporation (that operates the Pain Clinic of Monterey Bay) and Dr. Theodore M. Mazer, a San Diego physician.

F. The class-action lawsuit is brought on behalf of all underpaid suppliers in the United States and seeks back payments from Medicare dating back to 2001.

1. The lawsuit affects suppliers in 200 counties nationwide.
2. The total claim is approximately $3.2 billion (3/4 of 1% of Medicare’s annual budget).

G. We are asking the court to order Medicare to reform its fee schedule area map to ensure that the payment accuracy standards it set in 1996 continue to be met.