A Real "Doc Fix": Junk the Medicare Pay Formula and Pay For Quality

Last Updated May 20, 2010 11:22 AM EDT

Doctors are upset about the Democrats' plan to "fix" Medicare's planned reimbursement cut for five years (as of this moment, now reduced to three years) without repealing the underlying formula that led to it. But the whole discussion sidesteps a more fundamental problem: Medicare cannot simply continue paying doctors on a "fee for service" basis for anything they deem medically necessary. Instead, Congress needs to make Medicare accelerate its efforts to base physician pay on the quality of care doctors provide.

If Congress does nothing, doctors' Medicare fees will drop by 21 percent on June 1. The bill now being proposed would postpone that cutback for three years, after which physicians would get hit with another reduction. Naturally, the AMA opposes that and calls for a permanent "fix" that would repeal the SGR formula altogether.

Last year, the House passed a bill that would have rescinded the SGR and paid down the amount that doctors "owe" Medicare with a government appropriation of $210 billion over 10 years. But the Senate refused to go along, because senators on both sides of the aisle objected to doing so without finding a way to pay for it. The cost of a permanent "doc fix" over 10 years is now estimated at $276 billion; by comparison, the five-year plan considered earlier this week would have cost "only" $89 billion. However, the AMA says that the cost of a permanent solution would rise to $500 billion if the ball were kicked down the road for five more years.

What's left out of this discussion so far is the reason the the "sustainable growth rate" (SGR) formula that regulates doctor pay was devised in the first place. Because fee-for-service creates incentives for doctors to do more -- and often unnecessary -- tests and procedures, physicians keep doing just that, driving up Medicare's costs far faster than inflation. Doctors would be happy to stay on that road, but we can't afford it.

So in return for canceling the planned Medicare cuts, Congress should require physicians to accept a new reimbursement method that would eventually pay back the cost of SGR repeal. One way to do this would be to place a substantial portion of physicians' pay -- say, 20 percent -- at risk for meeting quality goals. Physicians who reached all of the goals would get a 10 percent bonus; those who missed some or all of the targets would lose up to 20 percent. If the targets were set high enough, the total amount of penalties would exceed the amount paid out in rewards, and the difference would cover the cost of SGR repeal.

This sounds draconian, but it would ensure that "doc fix" would be paid for. At the same time, physicians would soon realize that in order to meet the quality targets, they'd have to adopt electronic health records and begin to form either larger groups or clinically integrated networks. That would be good for patients and for the entire healthcare system.

What's no longer sustainable is the fee for service system that has no relation to the value of the care being provided. The sooner we get rid of that, the better.

Image supplied courtesy of Wikimedia Commons.

  • Ken Terry

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