At the state and national level, Medicare problems are crystallizing, but change at the Centers for Medicare and Medicaid Services is not easy.

When adjusted for geographic differences, the agency's reimbursements are too low for at least 10 California counties. But fixing these rates can hurt rates elsewhere in the state, especially in areas with a rural component, such as San Bernardino County. For years, the California Medical Association has tried and failed to push CMS for changes, and now the agency faces a federal bill and a lawsuit aiming to force its hand. At the same time, Medicare's Sustainable Growth Rate rule threatens rates again this year for all U.S. doctors.

"We're the only group practice in primary care that takes new Medicare patients in Northern Santa Cruz County," says Jack Watson, MD, a family practitioner and president of the Santa Cruz Medical Society. The problem "unquestionably" stems from poor reimbursement in Santa Cruz, especially when rates in neighboring Santa Clara County are 25 percent higher, he says.

"We are not for robbing Peter to pay Paul, and that's been Medicare's position-it has to be a budget-neutral fix," Dr. Watson says. Any increase for Santa Cruz County, which is among the 10 underpaid counties, must be balanced with new funding or decreased payments in other areas.

"Over the past five or six years, the CMA has proposed several modifications [to CMS rules], and Medicare has refused to implement any of them," says Dario de Ghetaldi, a partner at Corey, Luzaich, Pliska, de Ghetaldi & Nastari in Millbrae. On June 4, de Ghetaldi filed a class-action lawsuit for Santa Cruz and six other counties against Michael Leavitt, secretary of the U.S. Department of Health and Human Services in U.S. District Court in San Francisco.

Among other items, the suit requests that the court find that Medicare violated the law by failing to reclassify state localities, that plaintiffs have been denied rights to payments for services provided, and that because of its actions, Medicare has no authority to "impose statewide budget neutrality." The suit also asks for damages of about $2.5 billion--an estimate of how much the counties have been denied since 2001.

Minus the damages, HR 2484 has similar aims. Introduced in late May by U.S. Rep. Sam Farr (D-Carmel), the bill would require CMS to follow its own county-reclassification rules. It would also avoid taking money from rural doctors by stopping payments to independent diagnostic testing facilities that have not been state-certified in the past 12 months.

"We are basically codifying here a CMS regulation on independent testing facilities," says Rochelle Dornatt, Farr's chief of staff. "In California alone, we're looking at maybe $74 million of Medicare expenditures that should never have been spent."

The bill has been referred to the House committees on Energy and Commerce, and Ways and Means. It may be integrated into a Medicare reform bill planned by U.S. Rep. Pete Stark (D-Fremont), chairman of the Ways and Means Health Subcommittee, this month or in August.

Further, Medicare's SGR rules call for a 10 percent rate cut this year. "Congress has intervened every year since 2002 to change the cuts ... but there has been no change in the Sustainable Growth Rate formula," says a CMS spokesperson. The American Medical Association estimates SGR-related cuts of 40 percent by 2016. Barring a Medicare overhaul, Congress will again have to step in, if it wants to stop this year's cuts. Dornatt concludes, "When I talk about the big bill that Mr. Stark is looking to turn out in the next four to six weeks, that's what he's working on."