Why the "Doc Fix" Problem in Medicare Isn't Going Away Any Time Soon

Last Updated Nov 23, 2010 1:29 PM EST

While Congress has refused to outright repeal mandated cuts in Medicare payments to doctors, it still postpones them every few months. The latest such "doc fix," which passed the Senate last week, heads off a 23 percent drop in payments -- but only until Dec. 31. Unfortunately, the alternative to this charade is going to be ugly, and nobody wants to face that yet.

The $1 billion cost of the one-month reprieve will be paid for by reducing the amount Medicare pays for physical therapy services. So in the short-term, Congress is robbing Peter to pay Paul. It could do that on a grander scale by, say, taking money away from hospitals to fund a 10-year patch, which would cost roughly $300 billion. But somehow I don't think the hospital lobby would take that lying down.

The same goes for transferring money from drug companies to doctors. A Republican-controlled House is not going to give Medicare the authority to negotiate rates with the drug companies, as the debate over the Medicare drug benefit in 2003 showed. Even if the Centers for Medicare and Medicaid Services (CMS) did get that authority, it couldn't save enough to make a dent in the doc fix.

In fact, it's hard to figure out where the $15 billion for the 13-month patch backed by the AMA would come from. Senate Finance Chairman Max Baucus (D-Mont.) and ranking minority member Sen. Charles Grassley (R.-Ia.), the erstwhile bipartisan duo that broke over healthcare reform, promise to come up with a solution for all of 2011 before New Year's Day. But they're going to have to invent a new magic trick to defuse Republican opposition to raising taxes or the deficit.

Gail Wilensky, a former Medicare chief who's now a senior fellow at Project HOPE, writes on the Kaiser Health News blog that we can expect repeated short-term delays in doctor pay cuts for some time to come. The only real solution, in her view, is for Medicare to accelerate its experiments with payment bundling and other financing approaches such as the shared-savings program for accountable care organizations. We have to move away from fee-for-service reimbursement of physicians, she says, if we don't want the cost of Medicare Part B -- i.e., the program that covers ordinary doctor visits, but not hospitalizations -- to keep rising 10 to 12 percent a year.

You may wonder why this spending keeps increasing if Medicare isn't raising its physician payment rates. The reason is that when physicians are paid less than they'd like, they respond by doing more tests and procedures and boosting what they can bill to Medicare. (New technology is also a factor here, but not the only one.) This is why Congress in 1997 created Medicare's "sustainable growth rate" formula, which was supposed to hold doctor reimbursement down. But since Congress didn't have the guts to actually impose those pay cuts, they've mounted up over the years until they would now total 23 percent of what the program pays doctors.

Wilensky is right about the need to change how Medicare pays physicians. But the inconvenient truth is that most doctors and hospitals simply aren't ready to take bundled payments or form accountable care organizations. It will take most providers years to acquire the necessary health IT and infrastructure to do this -- not to mention the changes in business relationships and culture that will be required. So in the meantime, the government will have to devise a bridge strategy.

I don't know what that transitional model might be, but I suspect it will make a lot of people uncomfortable. Because if you can't enlarge the pie, and you can't rob Peter to pay Paul, you're left with only two alternative: raise seniors' costs (a political no-no) or lower payments to doctors.

Would the latter result in the mass abandonment of seniors, as the AMA predicts? That's doubtful, considering how much doctor and hospital revenue comes from Medicare. But there's no doubt that some painful adjustments lie ahead.

Image supplied courtesy of Wikimedia Commons.
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  • Ken Terry

    Ken Terry, a former senior editor at Medical Economics Magazine, is the author of the book Rx For Health Care Reform.

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