HealthDay News -- Last July, Congress replaced a 10.6 percent cut in Medicare physician payments for 2009 with a 1.1 percent increase. But physicians could face steep pay cuts in 2010 and beyond unless lawmakers take decisive action next year, according to interviews with healthcare experts.

The payment reductions are a function of the sustainable growth rate (SGR), a major component of Medicare's physician payment formula. The SGR is tied to the gross domestic product, not the cost of running a practice, and it is designed to restrain growth in federal spending on physician services. Particularly affected are internists, who serve a large Medicare clientele.

Over the last several years, the SGR has resulted in cuts to physician payments, which Congress has repeatedly blocked.

"It's very nice for the federal government to assert that any changes in reimbursement are going to be budget neutral to the federal government," said David Harlow, a principal with The Harlow Group, LLC, a Newton, Mass.-based healthcare law and consulting firm. "But it's not realistic to impose something like that on physicians who see practice cost increases on a regular basis."

While there is widespread agreement that the formula is flawed, fixing it is another matter.

In the current economic climate, it isn't clear where the additional money would come from. "We're probably looking at significant cuts across the board in federal programs in order to accommodate the [$700 billion] bailout, and who knows what else is coming down the pike?" Harlow said.

"Passing something that guarantees physician compensation right now is not going to be easy," agreed Michael Cassidy, a partner and chair of the health care practice group at Tucker Arensberg, P.C., in Pittsburgh.

As yet, there's no consensus on how to fix it. In a report to Congress last year, the Medicare Payment Advisory Commission (MedPAC) suggested two possibilities: repeal the SGR and have Congress make explicit decisions about how to update physician payment or replace it with a new system of expenditure targets.

By not dealing with the payment formula, "it's just delaying and exacerbating the problem," explained Thomas E. Dowdell, a partner in Fulbright & Jaworski LLP's Washington, D.C., office and a member of the firm's health law group and government relations practice.

Each time Congress delays the SGR-determined payment reductions, those costs accumulate, he said. If nothing is done next year, all physicians will face a 21 percent cut in 2010, and it's likely that more doctors would decide to end their participation in Medicare.

"We're already seeing evidence of physicians and physician groups declining to take new Medicare patients," he said, "and I think that trend would continue and increase."

Meantime, debate continues over the payment system's overall design, which rewards specialty care and procedures but undervalues primary care, according to MedPAC and medical societies representing generalist physicians.