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Nobody Likes Obama's "Doc Fix," but a Real Solution Is Anything but Easy

While President Obama's 2012 budget proposal is largely favorable to the healthcare industry, hospitals, drug companies, and even manufacturers of motorized wheelchairs are attacking him for cutting their potential revenue in order to protect doctors' Medicare payments. There's bipartisan support in the Senate for axing Medicare's physician payment formula permanently.

No matter which way you turn, the lack of a "doc fix" is becoming a huge problem. But the truth is there can be no "doc fix" until we fix much deeper problems in healthcare.

A 1997 budget law created a methodology called the "sustainable growth rate" (SGR) to guide Medicare reimbursement of physicians. Under the SGR formula, when the volume of physician services exceeded a certain level, Medicare was supposed to cut their fees. Congress took this approach because doctors had reacted to limits on Medicare fees by simply providing more care to patients.

It sounded good in theory, but its execution contained a fatal flaw: Every time Medicare threatened to cut doctors' payments, Congress intervened to prevent that, because it feared that some physicians would stop seeing Medicare patients. Fee cuts mandated by the SGR formula have been postponed every year since 2002. Last year, Congress delayed fee cuts -- by then amounting to 25 percent -- five times. Finally, in December, the lawmakers granted physicians a 13-month reprieve. Now Obama wants to extend that for a two-year period.

To offset the cost of doing this, the administration would find $62 billion in budget cuts plus savings from the stepped-up pursuit of fraud and abuse in Medicare and Medicaid. Among other things, the proposal would limit the amount that states could tax providers to support Medicaid. You might think that hospitals would applaud this, but you'd be wrong. The reason is that the state Medicaid funds provided by those taxes are matched by an even bigger Medicaid contribution from Uncle Sam. So in the end, the hospitals profit by being taxed. Reducing state provider taxes would actually save the federal government $18.4 billion a year.

From the viewpoint of the American Hospital Association, this is robbing Peter to pay Paul. "While we fully support eliminating future reductions to physicians, the answer to the physician payment issue is not cutting one provider to reimburse another," stated Richard Umbdenstock, president and CEO of the AHA.

Meanwhile, politics marches on. Max Baucus (D.-Mont.) and Orrin Hatch (R.-Utah), chairman and ranking minority member, respectively, of the Senate Budget Committee, both pushed President Obama to propose a permanent "doc fix." But neither senator had any helpful suggestions.

The fact is there is no easy solution. Back in November 2009, the Democratic-controlled House passed a bill that would have rescinded the SGR, but it would have cost $210 billion over 10 years. The measure failed on a procedural vote in the Senate, which had previously quashed a similar bill.

The Democrats were unwilling to include the "doc fix" in their main reform bills because it would have pushed the cost of reform way over $1 trillion. That was a non-starter as the two parties fought a pitched battle over the reform legislation.

Basically, Congress has three choices:

  • It can give doctors what they want and watch the deficit balloon;
  • It can keep the SGR and slash physician fees, which would risk seniors' wrath if doctors bailed out of Medicare;
  • It can encourage the rapid restructuring of the healthcare system.
That restructuring -- some of which the Affordable Care Act promotes -- would have to lead to the budgeting of provider groups. Doctors could earn more by providing high-quality, cost-effective care, but many would earn less than they do now.

I told you it wouldn't be easy.

Image supplied courtesy of Wikimedia Commons.

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