updated 8/8/2006 10:03:21 PM ET 2006-08-09T02:03:21

Doctors will see a 5.1 percent cut in their reimbursement rates for Medicare patients next year, according to proposed federal rules announced Tuesday.

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Hospitals will gain a 3 percent increase in their reimbursement rates for outpatient care, but they will get the full increase only if they submit data to the government indicating they’re following guidelines that improve patient care.

Mark McClellan, who oversees the Medicare program in the Bush administration, said the cut in doctors’ payments and the call for more quality reporting from hospitals reflect a payment system in the United States that can’t be sustained without change.

“We need to get out of the vicious cycle of rapid growth in utilization and spending,” McClellan said.

Under the current system, Medicare pays a set fee for when a particular service is performed. As a result, there is an incentive to order more procedures per patient, and that’s occurring at a dramatic rate, McClellan said.

For example, payments to hospitals for outpatient work went up nearly 12 percent in 2006, mainly because of growth in the number and intensity of treatments. Payments will go up 9.2 percent next year, McClellan predicted, even though the payments for a particular service are going up only 3 percent on average.

He said the growth in services per patient is of great concern because of its effect on taxpayers and Medicare beneficiaries who pay higher premiums. Those premiums are expected to rise to nearly $100 a month next year.

McClellan also said there is no clear evidence that indicates patients are better served through the increase in treatments, which is why he wants hospitals to submit more details about the care they provide. Failure to submit the data will result in lower payments, he said.

“Doing nothing is not sustainable from the standpoint of Medicare costs and beneficiary premiums,” he said.

The proposed cut in payments to doctors was expected. However, the American Medical Association has aggressively lobbied Congress to step in, which is something lawmakers have routinely done over the years.

“Seniors who rely on Medicare and the physicians who care for them are stuck wondering if 2007 will be the year access to care erodes as we wait for congressional action to stop the Medicare payment cuts,” said Dr. Cecil Wilson, chairman of the AMA’s board of trustees.

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