A Permanent “Doc-Fix” Remains Elusive


For now, all those physicians who threatened to make a mass exodus from Medicare can take a breather. Last week, the House voted to once again delay the mandated 21% cut in physician fees by another six months; thereby ensuring that the fight over the sustainable growth rate (SGR) will be resurrected sometime around Thanksgiving.

So far, Congress has kicked the SGR can down the road 10 times since 2003—four times just this year alone. The targets have long been considered unobtainable and the mandated physician payment cuts are opposed in Congress by Democrats as well as Republicans and supported by nearly no one. The level of anxiety among doctors continues to escalate every time the issue is raised—even though the cuts have never gone into effect for more than a couple of weeks. Why not get rid of this devilishly frustrating formula once and for all?

The short answer is that getting rid of the SGR—even though it has never led to any savings in Medicare—is just too expensive on paper. The Congressional Budget Office establishes a “baseline” projection of future spending and revenue that takes into account that all current laws will be enforced. Legislation that eliminates the SGR targets would then be scored by the CBO as adding to the deficit—to the tune of $276 billion between 2011 and 2020 even if Medicare payment rates to doctors were frozen at 2009 levels. In the current economic climate, it will be very hard to get enough members of Congress to agree to a permanent “doc fix” that eliminates the SGR targets without also finding a way to pay for it.

In light of this conundrum, Health Affairs published a policy brief last week that looks at the range of proposals for “fixing the doc-fix;” offering details on the costs and benefits of several possible strategies but, unfortunately, supporting no clear choice. Frustrating as that may be for those of us who want solutions, this is not just an editorial oversight: In conversations with experts in the field, it became clear to me that uncertainty is the rule of the game right now. Even the AMA and various doctor groups aren’t offering up a long-term solution—they just want the SGR to be gone. Now.

Everyone agrees that the SGR targets are unworkable. Most believe they will never be enforced. One key problem is that they don’t distinguish between those providers who are “gaming the system”—providing extra services in an effort to make money in the short-term—from those who are actively trying to meet Medicare’s targets. There’s just no incentive to even bother trying to meet the targets. “The biggest challenge from the SGR from the physician perspective is that if individual physicians or practices meet spending targets for that given year but our colleagues don’t, the SGR gets applied across the board,” says Valerie Arkoosh, president of the National Physician’s Alliance; a group that supports the move toward accountable care organizations. “It was a flawed formula from the beginning.”

The Health Affairs brief, “Paying Physicians For Medicare Services,” sets out several long-term options for “fixing the doc-fix;” each with its own set of problems and unknown consequences. I’ve summarized them below, but the brief is worth reading because it provides greater detail:

–Do nothing and allow SGR cuts to take effect. Because this could lead to a 40% drop in physician payments over the next several years, there is a risk that many doctors would stop seeing Medicare patients and access to care for seniors will become a serious problem. Also, the savings achieved by making these cuts across the board would not be that significant, according to Paul Ginsburg, president of the Center for Studying Health System Change and Henry Aaron, a health care expert at the Brookings Institute. “A 25 percent cut in payments for physician services over the next decade (which would imply a far larger drop in physician income, because practice expenses would not fall commensurately) would lower the projected annual growth of U.S. health care spending only from 6.2 percent to 5.7 percent,” they write in Health Affairs. For all these reasons, it’s highly unlikely that this option would be adopted by Congress.

–Abandon the SGR system—or at least shelve the problem for several years, rather than just for a few months at a time in hopes that Congress will in the meantime work out another solution. But even that would be costly: according to the brief, “the CBO estimates that freezing the rates through 2014 would raise the deficit by $89 billion.”

–Modify the SGR system. Such modifications could include:

1) “Rebasing”: wiping the slate clean and basing future target levels on actual spending. (This would also be expensive—the CBO estimates rebasing would raise the deficit by $194 billion)

2) Create separate spending targets based on area of specialty (allow more growth in payments for primary care, for example, and less in imaging services), geographic area, or for individual physicians (penalize “outlier” doctors who provide or order an unusually high number of services).

–Phase out SGR over several years and institute major payment reforms that move away from fee-for-service. “Paying service by service may encourage the fragmentation of care and the delivery of unnecessary services,” writes Mark Merlis, author of the brief. Instead, physician payment can be moved toward bundled payments and the development of accountable care organizations that are reimbursed on a capitated basis for each member or episode of care.

This final option really gets at the heart of Medicare—and health reform in general. It is what people like Donald Berwick (the current head of the Institute for Healthcare Improvement and Obama’s pick to head up CMS) see as the way to “bend the cost curve” on health costs.

Glenn Steele, President and CEO of the Geisinger Health System sees the health care system—and especially doctors—as heading into a transition period where fee-for-service will be blended with other payment schemes (per patient, or per episode of care, for example). “On the fee-for-service side, we’re continuing to be incentivized by piece-rate payment and pushing more units of work, and at the same time we’re trying to get a grip on payment for outcomes, whether it’s some sort of bundled payments, or quasi-capitation, or a shared-savings reimbursement incentive,” he told Health Affairs this month in an interview. “It’s going to be hard to have two quite different incentive models running at the same time through operations, whether you’re talking about the administrative aspect of running a hospital or a system, or whether you’re talking about the physicians. We’re going to have to work through a two-tiered reimbursement hybrid fairly quickly.”

What I’ve taken away from this exploration into a permanent “doc-fix” is that we are going to have to be patient. The new Center for Medicare and Medicaid Innovation will be charged with developing pilot projects and testing new innovations for payment and service delivery reform. The potential payout from these innovations could be significant—but they will take years to realize. In the meantime, the short-term fixes on the SGR-mandated fee cuts will likely continue and the formula will become less and less relevant.

More than half of the $938 million price tag for the Affordable Care Act is to be paid for by wringing savings from Medicare. Eliminating over-payments to Medicare Advantage will lead to an estimated $132 billion in savings over 10 years, according to Robert Berenson, vice-chair of the Medicare Payment Advisory Commission (MedPAC). And, he adds, “the ACA also produces nearly $200 billion in savings by assuming that providers can improve their productivity as firms in other industries have done.” Instead of wasting their time and energy lobbying against the SGR, the American Medical Association, the state medical academies and all the other physician groups that are vexed and outraged by the continual threat of Medicare payment cuts need to redirect their energy toward participating in and encouraging the kind of experiments that will truly reform physician payment, increase quality of care and cut the waste out of our health care system.

Naomi Freundlich writes for the Century Foundation, where she works with THCB author Maggie Mahar on the HealthBeat project. Prior to joining the Century Foundation, she served as Science and Medicine Editor at Business Week from 1989 – 1997. Her work has appeared in numerous publications, including the New York Times, Business Week, Real Simple and Parents magazine.

Categories: Uncategorized

Tagged as: , ,

7 replies »

  1. Hmmmmm. End of life care costing too much. I’ve been complaining about this issue for 2 decades. In my experience it is often the family, not the pt themselves who insist on “everything” when it is painfully obvious to the physicians that prolonging life often seems to worsen “quality of life” for the patient. The family however, continues to get the disability or social security checks……It is also interesting that many elderly qualify for supplemental medicaid when in fact, they have assets that could be used to pay for their [nursing home] care such as cars, houses, etc. This I think is fraud but since it is pretty standard, I guess it’s not really important.

  2. It is as Barry Carol said, basically ridiculous that politicians do not state the painful rhetoric that is a sizeable portion of medical expenses: end of life care that is really end of life costs.
    And still no one talks about the role of tobacco as a factor to costs. If you smoke, you either pay more for care, or, you are not insured until you stop AND can confirm by testing you have!
    Health care legislation written by politicians. If it were a joke, I’m not hearing the laughter. At least not from an audience. The politicians, they are laughing all the way, to the bank!

  3. I don’t see any real fix to the SGR anytime soon; my prediction is that this November will be a repeat of June, only worse due to the election and politically-charged climate we’re in. As for end of life care, it’s a tricky tightrope to walk, and one that we’re obviously not doing well. I tend to think on the same lines as Margalit on the matter. At my university we always asked whether they could forgo raising tuition and student fees if only the thermostats could be set at a reasonable level (so we wouldn’t have to wear winter coats during summer school). There’s plenty of “waste” to go around; it becomes controversial when someone else doesn’t think it’s waste (see this great cartoon as an example).

  4. “Instead of wasting their time and energy lobbying against the SGR… redirect their energy toward participating in and encouraging the kind of experiments that will truly reform physician payment, increase quality of care and cut the waste out of our health care system.”
    Really? Exactly where does one sign up for these? The most optimistic estimates suggest the ability to participate is years off, and the number of participants will be limited at that. The SGR cuts are real, at hand every few months, and apply to all.
    I’m a staunch proponent of delivery and payment reform. But, the reality is: practices (at least in primary care) are on the cusp of extinction now. Day-dreamy solutions and ‘innovative’ thinking don’t put meat in the pot.
    Increasing volume in physician practice is an option. McDonalds does it. Walmart does it. Neither of these entities does it in an environment where the individual customer determines the product (ask for your egg over-easy at McDonalds and see what you get). Further, these entities don’t do it under the burden of multiple formularies, prior authorizations, hundreds (if not thousands) of payment schedules, payments made months after service, or in life/death/quality of life situations.
    The physician groups need to continue to spend their energy (albeit wasted) on maintaining the current payment levels, much like Walmart would if people came walking into the store with their own pricing guns then ran out the front door yelling ‘bill-me later’.

  5. I guess it very much depends on how you define waste.
    I think waterfalls and marble lobbies in hospitals are waste. I also think that executive salaries in both the hospital and insurance business are mostly waste. I think shareholders dividends are waste. I think duplication of expensive tests is a major waste and practicing defensive medicine, or plain profiteering medicine in some cases, is also waste. Of course shoving tubes into people who don’t want them is more than just waste, it’s abuse, but that’s not what we are really discussing here.
    So before looking into regulating how people die, shouldn’t we maybe take a closer look at how some other people live?

  6. The AP article that Matthew linked to in his July 2nd post, “Why we need to Engage with Grace, with Update” suggests that fully one-third of Medicare dollars are spent treating chronic conditions in the last two years of life. I think the underlying problem is our selfish culture. Too many people want any treatment, no matter how expensive, that has even a tiny chance of benefiting them and they expect someone else (taxpayers in the case of Medicare beneficiaries) to pay for it. The problem is exacerbated by a litigation system that makes doctors fear being sued if they don’t accommodate these requests.
    Everyone, especially the elderly, should be strongly encouraged to execute a living will or advance medical directive with the information to be stored on a registry so it is readily accessible to doctors and hospitals when needed. For those who don’t have one, the default protocol should allow doctors to apply common sense depending on circumstances. If it were up to me, the default protocol would be no heroics in end of life situations. People who execute directives that call for heroics should be charged more for their health insurance. Family members who call for heroics contrary to the patient’s wishes should be ignored (unless they or the patient can self-pay) and they should have no standing to sue.
    I also think we tend to overplay the attitude of where there’s life, there’s hope. Often patients and families who want to fight to the very end, especially cancer patients, are portrayed as brave and courageous while those who want to stop fighting are somehow weak and cowardly. That also needs to change.
    Susan Dentzer’s interview with Geisinger CEO, Glenn Steele, in the most recent issue of Health Affairs, was, I think, rather discouraging with respect to their ability to bend the cost curve in treating their more complex elderly patients despite the organization’s electronic records, salaried doctors, experimentation with bundled payments and culture of collaboration as well as being the payer / insurer for 30% of their patient population. He estimated savings of 7% vs. what costs would have otherwise been which pales in comparison to the estimates of waste throughout the system which range from 30%-50% of healthcare costs.
    While I certainly don’t agree with the infamous 1984 comment by former Colorado Governor, Richard Lamm, that the very sick and frail elderly have a “duty to die,” (in order to save healthcare costs), I do think that all of us, elderly and non-elderly alike, have a duty to care about costs even when someone else (insurers or taxpayers) is paying. To begin to do that, however, doctors and hospitals must make us aware of what treatment costs are likely to be before services are rendered. The current system is unsustainable and we all need to think more about what economic life will be like for our children and grandchildren and less about ourselves.

  7. It is exactly the wage freeze and peculiar formulae that have caused the inflation in all of health care. It will continue to fester, only much worse, with enforced use of electronic care records which further reduce efficiency of care. Doctors who read this are best advised to not waste you money on the devices the government is coercing you to buy.