The “Doc Fix” Juggling Act…Again

It’s crunch time once again for Congress; on March 1, the much-dreaded (and much threatened) 27% cut in reimbursement for doctors who treat Medicare patients is poised to go into effect. Fee cuts are mandated every year that Medicare’s actual spending on physician services exceeds a target determined by a standard growth rate (SGR) formula linked to the growth of the nation’s economy. So far, Congress has kicked the SGR can down the road 13 times since 2003—including five short-term fixes in 2011 alone. The targets have long been considered unobtainable and the mandated physician payment cuts are opposed in Congress by Democrats as well as Republicans. They have never gone into effect and my prediction is that they never will.

Nearly everyone (aside from doctors who cry wolf each time the cuts come back on the table) seems to agree that the cumulative fee cut will not occur and that the SGR is a nonsensical formula that needs to be either repealed or refigured. But the problem is that the 27% pay cut has already been figured in federal spending and deficit projections. Even though these are artificial savings from what the Chicago Tribune recently called “a phantom cut,” the Congressional Budget Office calculates that if the Medicare SGR formula was repealed today, it would cost about $316 billion over the next 10 years. Figuring out how to pay for this increase in Medicare costs continues to stymie legislators and provoke battles between those who see the offset coming from long-term savings associated with the health reform law and those who insist on immediate dollar-for-dollar cuts.

In the current “Doc-fix” dust-up, Congress has bundled any short-term plan to avert Medicare reimbursement cuts with the extension of both the popular Social Security payroll tax cut and unemployment benefits. The problem (as if we needed reminding) is that the rising budget deficit has further solidified the current “pay as you go” approach to negotiations—especially among conservatives. That means lawmakers must find more than $150 billion to offset the cost of extending all three policies for the next 10 months before the last agreement—hammered out only in December—expires.

I’ve waited until now to write about this latest attempt to extend the “Doc Fix” because so far, daily news accounts have pointed to more of the same in terms of political posturing. As in past negotiations, the American Medical Association first sounds the alarm and begins warning of a mass exodus of providers from the Medicare program if the cuts are allowed to take place. In Congress, a stalemate quickly develops as the “Doc Fix” is inextricably linked to the political ramifications of extending employment benefits and both parties can’t agree on how to pay for these deficit-increasing actions.

On Tuesday, 20 lawmakers appointed by the House and Senate to broker a bipartisan deal to extend the payroll tax cut met for a key negotiating session. This same group is also charged with finding a way to extend unemployment benefits and to avert scheduled cuts in Medicare payments to doctors. No real news to report: To pay for these extensions, Republicans proposed a package of spending cuts that include maintaining a pay freeze for federal workers for an additional year (saving around $26 billion), having wealthier seniors pay higher Medicare premiums ($31 billion) and scaling back insurance subsides offered on the exchanges set up by the Affordable Care Act, which the GOP predicts will save another $13 billion.

Democrats, on the other hand, oppose the federal employee pay freeze as well as higher Medicare premiums for higher-income seniors and reject any cut in insurance subsidies offered by the ACA as a thinly-veiled attempt to gut the health reform legislation. They prefer implementing a 1% tax surcharge on individual income over $1 million to help pay for the payroll tax cut and using savings from winding down the wars in Iraq and Afghanistan to help pay for the “Doc Fix.”

Sen. Max Baucus (D-MT), the leading Democratic negotiator, told the Washington Post, “I think we need to wrap this up — or be at least close to wrapping this up — in a matter of days.”

As of today, there is little sign of agreement.

Meanwhile, if negotiations do succeed, the SGR will still be in place and the “Doc Fix” will be once again be temporarily extended for a year or two.  This is far from ideal—year after year the federal budget factors in fake Medicare savings that get carried over by sleight of hand and last minute capitulations. The only long-term solution—favored by Republicans and Democrats—is to repeal or drastically reform the SGR.

As Glenn Hackbarth, chairman of the Medicare Payment Advisory Commission (MedPAC) said last September, “Each year, the decision is made to just postpone [SGR] cuts, the cost of even deferrals rises inevitably and relentlessly as we go forward.” He continued; “In a period of growing fiscal stringency – and I don’t think we’re talking about a year or two of tight budgets but really a new era of austerity – finding even offsets for deferrals will become increasingly difficult, I fear. It is in the best interests of the Medicare program over the long term to deal with the SGR issue once and for all.”

MedPAC calls for repealing the SGR, but the federal advisory group’s proposal for offsetting the cost has been controversial. It would freeze pay rates for primary care physicians for ten years and lower reimbursement for certain specialists by 5.9% in each of three years. Specialists’ pay would then be frozen for the remainder of the 10 years. Doctor’s groups oppose these offsets and hospitals, durable medical goods suppliers and other providers have expressed displeasure with still other cost-saving initiatives in the MedPAC proposal. One MedPAC recommendation is that the government pay the same rates for ‘evaluation and management’ services, i.e. office visits, regardless of whether they take place in doctors’ offices or hospital outpatient departments. MedPAC officials found that Medicare pays hospital outpatient departments as much as 80% more than if similar services are provided in physician offices. Right now, hospital outpatient centers are consolidating; buying up many private practices. This leads to a rise in physician payments and growth in Medicare spending. But if hospital outpatient payments are brought in line with private office rates, the federal government could save between $1 billion and $5 billion over the next five years.

MedPAC’s is not the only plan for repealing the SGR. Rep. Allyson Schwartz (D-Pa.), authored a plan for nixing the mandated fee cuts and suggested to the bipartisan Congressional panel that they use savings from winding down the wars in Iraq and Afghanistan—estimated at $1 trillion—to pay for the repeal, not just a short term fix. http://www.medpagetoday.com/article.cfm?tbid=30969 And in a July 2010 post for HealthBeat, I summarized a range of proposals for “fixing the doc fix,” each with its own set of problems and unknown consequences.

At the time, I wrote, “uncertainty is the rule of the game right now.” Since then, it has become clear to me that while repealing the SGR requires embracing this uncertainty, it is not necessary that we immediately come up with $316 billion in specific cuts and new revenue to pay for it. That’s because—let’s be honest here—we have never seen any savings from the SGR, so technically there’s nothing to recoup. And we know that in the future, there will be significant savings from moving forward with health reform and the fundamental shifts in Medicare payment policies that provide incentives for doctors to control costs and provide evidence-based care.

Mark McClellan, Senior Policy Fellow at the Brookings Institution believes that we can “bend the health care cost curve” by instituting a wide range of reforms that include well-coordinated data exchange across all levels of the health care system, payment reform based on evidence-driven measures of quality care, value-based insurance design and finally, offering consumers a wide choice of insurance plans similar to Medicare Part D’s pharmacy benefit. Taken together, he told me, these reforms could lead to a 1% drop in health spending growth per capita, per year.

When it comes to the SGR and physician costs, McClellan says that the current formula “sort of has the wrong kind of effect.” Physicians aren’t rewarded for investing in technology, preventing complications or reducing hospitalizations. And those who are actively working to reduce costs could end up being penalized if other physicians in their area exceed the SGR.

McClellan cites the example of oncologists; most of their compensation comes from administering oncology drugs and radiation treatments. Instead, Medicare should shift some of that payment towards interventions that keep cancer patients out of the emergency room or hospital—including developing a treatment plan, or working on pain management, or having someone available to see patients in an ambulatory care center. Right now when oncologists do these kinds of things they get “punished” financially, says McClellan.

In the end, the current “Doc Fix” crisis is a crisis in name alone. Nobody wants to cut reimbursement to doctors who treat Medicare patients by 27% or 30% or, if we wait two more years, 40%. In an election year, the current impasse is really about both political parties trying to paint each other as the villain in refusing to compromise on the payroll tax cut and jobless benefits. For conservatives, brokering a short-term “Doc Fix” offers a prime opportunity to cut Medicare benefits and limit the scope of health reform—two programs they have repeatedly vowed to contain.

My bet is that whether by compromise or under threat of a back-up plan penned by Senate Majority leader Harry Reid at the eleventh hour; by the end of the month, SGR cuts will be put off for yet another year or two and the threat of mass physician defection from Medicare will die down. In that interval, it behooves all stakeholders to work on crafting an intelligent plan for the repeal of the pesky SGR formula, once and for all.

United Healthcare announced today that it will do exactly that. Payments based on how well docs keep patients out of hospital and provide certain evidence-based care.