The Doc Fix

Holiday cheer and bipartisan bonhomie are still possible on Capitol Hill.

For evidence, one need only look at the so-called “doc fix,” where Congress every year overrides a previous effort at health care cost control to ensure physicians get paid at least as much as they did the year before.  Expect another present to arrive at physicians’ offices sometime between Thanksgiving and Christmas, now that the Super Committee has failed to permanently resolve the issue as part of Medicare’s contribution to long-term deficit control.

The heretical thought that the salaries of physicians who treat Medicare patients could be held in check dates from the mid-1990s. The optimistically entitled 1997 Balanced Budget Act created a “sustainable growth rate” (SGR) for physician reimbursement that said any increase in total pay for physicians could not exceed the growth rate of the rest of the economy.

That was wishful thinking, as it turned out. Health care costs and physician pay far exceeded economic growth, largely because of Medicare’s fee-for-service system. While the Center for Medicare and Medicaid Services could fix the reimbursement rate for the 7,000 price-controlled services offered by physicians, it could not put a brake on the quantity that physicians ordered.

“This system, which ties annual updates to cumulative expenditures, has failed to restrain volume growth and, in fact, may have exacerbated it,” the Medicare Payment Advisory Commission (MedPAC) noted in its non-binding recommendations to Congress in mid-October.

Total physician pay, which is a product of both price and volume, has exceeded economic growth every year since 2003. And every year, Congress has voted more money to ensure that the fees per service never go down. Last December, for instance, physicians’ fees were frozen at 2010 levels, which had been increased earlier in the year by 2.2 percent over 2009.

But as the economy steadily moved ahead, even at its recent tortoise-like pace, the gap between the legislated  SGR and what doctors actually got paid grew larger and larger. Congress needed to come up with supplemental appropriations to close the gap. Last June, the Congressional Budget Office calculated it would $275 billion to maintain physician pay at current levels over the next ten years.

Since Democrats and Republicans on the Hill and the White House swear by “pay for” budgeting, closing that gap requires finding money somewhere else. Given the sky high total, it’s likely that this year’s fix – like last year’s fix – will be a one- or two-year stopgap measure that uses ten years of savings from some minor limits on spending in other parts of the Medicare program.

That’s right. Congress votes and the president signs a bill that counts ten years of savings to pay for one or two years of spending.

According to a CBO analysis published in June, a one-year freeze on physician salaries would cost $22 billion. But that would leave physicians facing an even larger cliff on Jan. 1, 2013 – a 34 percent gap between the legislated SGR and overall physician pay, up from 29.4 percent this year. That date also happens to be when the $1.3 trillion in sequestered budget cuts go into effect, and when the Bush-era tax cuts, from which most physicians derive significant benefits, expire. Median salaries for physicians in the U.S. range from $174,000 per year for family practitioners to $225,000 for surgeons, according to the Bureau of Labor Statistics.

The American Medical Association has spent most of the past year lobbying Congress to abolish the SGR. In testimony before the House Energy and Commerce Committee last May, AMA president Dr. Cecil Wilson lobbied for a pay increase, calling for setting rates high enough to equal to the growth of medical practice costs. “This will allow time to develop and test demonstration and pilot projects that would form the basis for a new Medicare physician payment system,” he said.

MedPAC’s recommendations were far less generous. It called for reducing payments for overpriced services, and a three-year, 5.9 percent annual reduction in pay for all specialties other than primary care, which would be followed by a freeze for seven years. On the other hand, primary care doctors, whom the health care reform law projects will play a major role in controlling costs by limiting unnecessary services, will have their pay stay the same for the full ten years.

“Taking into account the increase in the number of Medicare beneficiaries over the next 10 years and growth in the volume of services provided per beneficiary, total practitioner payments from Medicare would rise from $64 billion to $121 billion,” the report said. “On a per beneficiary basis, practitioner payments would continue to rise at an average rate of 2.2 percent a year.

The price tag for Congress and the administration under the MedPAC proposal would still be $200 billion over the next decade.

And where could Congress raise such sums from elsewhere within the program? MedPAC identified $50 billion in savings from previous recommendations like creating co-payments for home health episodes and limiting the increases given hospitals, dialysis clinics and hospices. It also identified $219 billion in potential savings that it hasn’t yet recommended, including $75 billion in reduced payments to pharmaceutical companies for drugs sold to Medicare beneficiaries who also qualify for Medicaid.

Given the powerful interest groups that would be hurt by any of those recommendations, don’t expect a permanent fix any time soon. The most likely scenario is for Congress to cobble together the $22 million needed to kick the can down the road another year.

This post first appeared at The Fiscal Times.

Merrill Goozner has been writing about economics and health care for many years. The former chief economics correspondent for the Chicago Tribune, Merrill has written for a long list of publications including the New York Times, The American Prospect, The Washington Post and The Fiscal Times. You can follow him at his blog, GoozNews.

15 replies »

  1. Where car shop joondalup to buy your parts from a reliable dealer.
    So the answer is yes then you are like me, and you want to do exact restorations and others may desire to check general categories first.

    Car fixing and refinishing can be a similar car, signed up at the same time, not many other materials can soak up soo much time and effort.

  2. It hurts I know. They have done nothing but cut other healthcare providers for years. I feel the pain, and it is time the doctors feel the pain as well, if that is what it will take to fix the problem and save Medicare for everyone. There remain areas within our sector of healthcare (Medical Equipment Suppliers) that are abused and exploited and need reform but the problem is our lawmakers tend to throw the baby out with the bath water, instead of targeting insane advertising campaigns by cherry picking dealers, pushing everything from diabetic supplies, catheters, impotence devices and motorized wheelchairs, they go after grandma’s local and often rural full service medical equipment supplier with over regulation and unfair competitive bidding advantages. If hospitals, labs, home health agencies, nursing homes and medical equipment suppliers have to continue to experience deep painful cuts in reimbursements, why does congress feel the need to spare the physicians? Let’s get it over and just balance the budget and instead of destroying healthcare for those who need it most lets fire some politicians, cut the pay of those who remain to reflect the sacrifice of their local constituents, say tied to the unemployment rate in their districts. and instead of sending our money to our enemies overseas let’s take care of our own..

  3. That’s the reason why all the ideological bs about non-profit vs. for-profit is just that- bs. As Uwe Reinhardt famously said: they’re all “for revenue”. There are non-profit hospitals in Chicago that are paying their CEOs, inc. retirement benefits, as much as $10 million in a single year, and peer institutions that are flying them around in leased executive jets.

  4. This is interesting, tcoyote. If a non-profit of Kaiser’s magnitude is not inclined to give up revenues created by efficiency, whether it gains share or not, what makes us think that other portions of the industry will be more willing to do so?
    In other words, all this efficiency and value-based decision making, if successful, will serve to increase revenues for some, but not decrease expenditures for most.
    This may also explain the blooming bi-partisan trend to turn Medicare over to the private sector – government sets the rules and regulations to foster efficiency and private enterprise reaps the extra revenues. Perhaps a couple of nickels & dimes will trickle down eventually.

  5. There’s a real chance they drop the ball this time and don’t extend the fix.
    The two parties are drifting apart on a lot of things, and this might be the way the Dems pay the Republicans back if they fail to extend the payroll tax cut and unemployment benefits . . .

  6. That one’s easy. Kaiser shadow prices its premium quotes to stay a little below the prevailing rate increases of insurers in their markets that use fee for service based practitioners. They might be more efficient, but that’s no reason to give up revenues. Gaining share but losing earnings is something that Kaiser tried in the 1990’s and nearly wrecked their financial position.

  7. All they have to do is permit balance billing. I do not know what made them think we should not balance bill, except of course their desire for politivcal control over patients and docs.

    I do not care what the CMS pays. I do care what the total payment is.

    I promise we drop Medicare if the fix is not in.

  8. I don’t hear a lot of responsible colleagues echoing that Kaiser is such a wonderful, altruistic system to work for. Hmm, wonder if others will come forward and reveal some of the more dark truths that seem to exist in that organization. Transparency up front, never worked for them, and never will.

    You know what I have learned, integrity and responsibility do not get spotlights and endless praise. The deeds speak louder than the words, and don’t look for accolades and clapping. Just an opinion.

  9. “How is it possible then, that the premiums for Kaiser members are not faring any better than the fee-for-service sector?”
    The entire FFS argument is a red herring. It doesn’t matter if it is capitation, FFS, or some new reimbursement providers are going to want $X for the amount of work they do. The only way then to reduce money is reduce the amount of work they do. While FFS doesn’t accomplish that nither did/does capitation. In some markets we have been seeing HMO rates increase faster then FFS because doctors still can’t stand up to a patient that wants service.

    The only way to reduce service is to ration it. You can restrict the number of providers so the market lacks capacity to provide the service or go with a global budget, like capitation but different in the sense Americans have applied capitation in the past, so systems get $X no matter how much treatment they provide.

    Both methods are very innacurate and risky. Its one thing to tell an American they can’t have something because they can’t afford it, its a whole nother to tell them they can’t have it because you said so.

  10. “How is it possible then, that the premiums for Kaiser members are not faring any better than the fee-for-service sector?”

    Maybe because they have to pay for their billion dollar EHR?

  11. The health costs in America must be something of a expense on people or the general person in America, in Ireland where I am from its different if you have to call an ambulance without the referal from a doctor would cost you something in the region of €300, but I would like to know how this has worked in America in comparison to the Republic of Ireland?

  12. “How is it possible then, that the premiums for Kaiser members are not faring any better than the fee-for-service sector?”

    That’s a good question, Margalit. While I don’t know the answer, one possibility is that there could be an upward drift in the average age and/or average acuity of Kaiser’s members relative to its competitors. Unfortunately, we don’t have individual risk scores for the under 65 population to make this determination. I’ve heard it suggested that insurance brokers in CA sometimes steer small and mid-size groups with an above average risk profile to Kaiser because they’re more willing to accept them. Perhaps Nate could shed some light on this.

  13. Just a few observations/questions:

    1) I am not sure if there are other occupations who receive government money for services, such as say, military contractors, whose pay is somehow tied to “the growth rate of the rest of the economy”, but if we want to have such tie, why only physicians? Why not, say, CEOs of hospitals? Why not tie what we pay for drugs and devices and hospital beds and electricity and janitorial work in hospitals and IT to “the growth rate of the rest of the economy”? Surely, we can save more money that way, so why not?

    2) As I mentioned here before, the MedPac recommendations will not keep primary care total reimbursement unchanged, since MedPac only keeps E&M types of services at current reimbursement levels, and most primary care physicians do other minor procedures in office. The reimbursement for those other procedures will be cut along with the specialty items and most PCPs will see a drop in revenue.

    3) I am very curious if there is any proof that the following sentence is indeed correct: “Health care costs and physician pay far exceeded economic growth, largely because of Medicare’s fee-for-service system”. There are several systems out there such as Kaiser, that employ physicians and do not pay them fee-for-service. How is it possible then, that the premiums for Kaiser members are not faring any better than the fee-for-service sector?

  14. Thank you for this article. I have spent 20 yrs in health policy including an 8+ yrs stint on Capitol Hill. The reduction in the physician fee schedule works as intended and the “doc fix” is all about the power of their lobbyist to maintain their income. It is truly a shame we do this every yr.