Doctors, Counties Sue for Medicare Underpayments

March 14, 2011

Seven California counties and three physicians have sued the federal government for $3.2 billion, accusing it of underpaying physicians due to an outdated Medicare payment formula.

Seven California counties and three physicians have sued the Department of Health and Human Services for $3.2 billion, accusing the agency of underpaying physicians due to an outdated Medicare payment formula, American Medical News reported.

At sue is a Medicare payment rate formula that has not been updated since 1996 and fails to account for cost-of-living differences in different geographic regions. As a result of the outdated formula, substantially lower or higher Medicare payments are being made to physicians who perform the same services, the lawsuit charges.

A similar suit was filed in California and later dismissed, but in September 2010 the 9th U.S. Circuit Court of Appeals allowed the case to move forward, according to American Medical News. The amended lawsuit now includes three California physicians.

Dario de Ghetaldi, an attorney for the plaintiffs, told American Medical News that the Medicare payment formula continues to group some urban areas with rural areas to calculate the practice cost index, which helps to determines final Medicare rates for that area. Because the formula hasn’t been updated in nearly 15 years, physicians are paid up to 24% less than nearby colleagues, de Ghetaldi said.

Healthcare professionals in some Texas, North Carolina and Ohio counties also are among those impacted by the geographic payment system, according to the suit.

Ted Mazer, MD, a San Diego otolaryngologist is a plaintiff in the lawsuit, told American Medical News that the suit places California doctors on at odds. "If you're practicing in a rural area, you're not exactly going to agree you're being paid too much," he said.

Steve Barrow, policy director for the California State Rural Health Assn., said rural physicians in are also concerned with the pay rate system and want the underlying formula to be fixed, according to American Medical News.

"I don't get the sense that physicians are blaming each other" for what they're being paid, he said. "I think everyone would like to be able to make sure everybody's paid adequately so that the whole system is stable."

Read more about the lawsuit at American Medical News.