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Doc Payment Fix: An Endless Hunt for Pay-Fors

By John Reichard, CQ HealthBeat Editor

October 28, 2010 -- After years of both parties piling the cost of blocking Medicare physician payment cuts onto the federal deficit, Republicans are saying "No more."

With the possibility of major gains in Tuesday's midterm elections, they are thinking big—talking about permanently replacing Medicare's troublesome sustainable growth rate (SGR) formula, which triggers bigger and bigger doctor payment cuts that lawmakers won't tolerate.

And Republicans say they will find budgetary offsets to pay for stopping the cuts.

Each year Medicare sets an SGR target for how much it will spend to pay physicians across the country to treat beneficiaries. For every dollar that target is overshot, physician payments must be cut to compensate for the excess.

The cuts triggered by the formula are expanding all the time not only because of past spending in excess of the yearly targets, but also because the costs of short-term legislative patches to block the cuts aren't offset with tax increases or cuts elsewhere in the federal budget.

For example, on Dec. 1, when the latest short-term "doc fix" runs out, Medicare is scheduled to cut doctor payments by 21 percent. On Jan. 1, another cut of 6 percent is scheduled.

After the headache of enacting multiple short-term fixes this year to block such cuts, Republicans are committed to a long term solution to the SGR formula, says a House GOP aide. "We aren't going to pass a physician fix that isn't paid for," the aide adds.

"You need to put in a new system," says Rep. Joe L. Barton of Texas, who would vie with fellow Republican Fred Upton of Michigan to become the new chairman of the House Energy and Commerce Committee. Barton says he wants to hold hearings to develop a bipartisan approach.

For his part, Upton says "we cannot let our physicians continue to live in fear of cuts in their reimbursement. The SGR needs to be fixed once and for all, and that should be one of the top priorities of the committee."

Both the Energy and Commerce and Ways and Means committees would be involved in fashioning a solution, and joint planning by committee Republicans and House GOP leaders is already under way.

"It's not just a Ways and Means thing, the leadership is involved, as is Energy and Commerce," the aide said.

But the enormous cost of replacing the SGR—lobbyists put the total at between $300 billion and $400 billion over 10 years—makes a permanent SGR fix a remote possibility at best.

That's because Republicans are talking about paying for scrapping the formula by dismantling this year's health care law, which would almost surely trigger a presidential veto.

That doesn't mean they won't move legislation to dismantle the law in the House if they gain control. They could try to score political points by doing so, saying they would block the expansion of Medicaid under the law, thereby raising $400 billion to pay for fixing doctor payments.

But with the Senate and President Obama almost surely blocking such legislation, it does mean that at some point Republicans must find a realistic way of paying to block the Medicare physician cuts.

And that means reaching agreement with congressional and the White House on how to do that.

With tax increases off the table, that means cutting federal spending. But where? Reducing the length of time cuts under the SGR are blocked reduces the cost of pay-fors and makes the challenge more manageable, at least in the short run.

Doctor groups have been talking about a two-step approach. In step one, lawmakers would pass legislation in November to block the Dec. 1 cut until Jan. 1. In step two, they would pass another bill in December to keep any further cuts from taking effect during 2011.

But GOP and Democratic health aides do not know where cuts could be made to pay the estimated $17 billion-to-$20 billion cost of that approach, said Julius Hobson, a senior policy adviser with the Polsinelli Shughart's Washington law office.

Hobson thinks a one-month fix is in the offing, to be followed by a series of short-term fixes next year because of the difficulty of reaching agreement on offsets.

"A permanent fix is off the table," he says. "I could see Congress doing three months at a time next year."

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