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With Big Money at Stake, Medicare Panel Seeks to End the 'Doc Fix' Cycle

By John Reichard, CQ HealthBeat Editor

March 25, 2011 -- Congress will soon be looking for a way to address the problems associated with a 29.5 percent payment cut that the Medicare physician reimbursement formula will impose next year on doctors.

The federal Medicare Payment Advisory Commission (MedPAC) is gearing up to help, and if things go according to plan, the panel will recommend to Congress in October how best to revamp the sustainable growth rate formula, which doctors know—and malign—as "the SGR."

Assuming MedPAC can reach a consensus—something it could not do in 2007, its last serious attempt—it could guide Congress on how to reshape the formula, which pays physicians to deliver care to millions of the nation's most vulnerable people.

Insights into what MedPAC might advise can be gleaned from the minutes of the panel's most recent deliberations and a 2007 report to Congress in which the commission outlined alternatives. Many MedPAC commissioners seem determined to make physicians individually accountable for the way they practice medicine. Indeed, doctors may be on the hook financially not only for the quality of treatment they deliver and the outcome, but also for how they husband resources.

Now, doctors actually can get paid more for being sloppy or inefficient. Medicare's "fee for service" system boosts a provider's income with each new appointment, test, or procedure ordered.

Look for recommendations to foster greater teamwork among doctors and other caregivers, perhaps by pushing them to form the "accountable care organizations" the Obama administration is about to propose for Medicare as required by the health care law (PL 111-148, PL 111-152).

Such changes couldn't happen overnight, given the $300 billion to $400 billion it would cost over a decade to replace the current formula. But with the recent pattern of "doc fixes"—short-term adjustments to the SGR—becoming ever more expensive, Congress may be willing to pay for a complete overhaul within a few years.

Given how much it would cost to redo the formula, MedPAC Chairman Glenn Hackbarth is determined to extract changes to give taxpayers better value for each Medicare dollar. Of course, Congress wants a menu of possible Medicare cuts elsewhere to offset the enormous expense of switching to a system in which doctor payments rise modestly based on a measure of inflation for medical costs. Hackbarth already has signaled that implementing any MedPAC recommendations would cost big bucks.

Establishing a sustainable increase in Medicare payments to doctors seemed liked a good idea when Congress adopted it in the 1997 balanced budget law (PL 105-33). The SGR set an annual spending target based on the growth of the overall U.S. economy. Spending that exceeds the target must be recouped in payment cuts the following year.

In practice, Medicare spending busts the target every year and Congress passes a payment patch—the doc fix—to prevent the resulting cuts. But the formula never forgets. Any excess not recouped stays on the books and increases every year that spending exceeds the target. Until recently, the cost of temporarily averting cuts was not offset and only added to the debt that must be recouped in cuts. The result: escalating spending above the target that forces bigger and bigger cuts and increasingly costly patches.

Julius Hobson, a former American Medical Association (AMA) lobbyist now with the law firm Polsinelli Shugart, notes that as a result, the 10-year cost of replacing the SGR with modestly growing annual rates has escalated from $85 billion a decade ago to some $350 billion.

Hackbarth has shrugged off AMA warnings for years that the SGR would lead doctors to bolt Medicare. The pay may not be great, but doctors have stuck with Medicare because it pays claims efficiently, which helps their cash flow. Hackbarth warned the Ways and Means Health Subcommittee on March 15 that doctors may soon start to drop out, leaving seniors without care.

A nearly 30 percent cut in reimbursement rates probably would lead to significant defections. But the current system of short-term patches already interrupts claim payments and gives doctors cash-flow headaches. Many doctors close to retirement are sick of Medicare's administrative hassles, such as adopting health information technology and reporting data about quality of care. The cycle of shorter payment patches could be the last straw.

House Republicans are consulting with doctor groups on how best to replace the SGR. They're aiming to pass legislation later this year that uses Medicare cuts in the new health law to cover the costs. But that's a non-starter. Federation of American Hospitals President Chip Kahn says that while he wants to fix the SGR, hospitals and other providers shouldn't be "taxed" to cover the costs.

A grand bargain on the federal budget deficit could bring tax-code changes that would raise enough money to replace the SGR with the more efficient scheme that many on MedPAC envision, some analysts say. But there's not much chance of that until after the 2012 elections.

For now, look for Congress to whip out its charge card again at the end of the year and pay another $20 billion to $25 billion for a 12- to15-month payment patch while the SGR debt keeps growing.

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