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Overhaul Won't Fix Medicare Physician Payment System

By Drew Armstrong, CQ Staff

October 1, 2009 -- The ongoing effort to overhaul the health system was supposed to give Congress an opportunity to fix one of its most troublesome recurring problems—what to do about a Medicare payment formula that, each year, mandates deep cuts to physicians and forces Congress to scrounge for money to temporarily undo them.

But lawmakers won't make good on that opportunity this year. Again.

The payment system, known as the Sustainable Growth Rate, is a cost control measure dating to 1997 that orders cuts or increases depending on Medicare's spending on physicians in years past. In 2010, it will demand a 22 percent reduction; for years into the future, even more deep cuts are anticipated.

Almost everyone involved in the debate views the cuts as politically unacceptable, and Congress has stepped in almost every year since 2002 to stop them.

"We have a broken doctor payment system in Medicare that we have to fix every year," said Orrin G. Hatch, R-Utah, a member of the Finance Committee, which has responsibility for the policy in the Senate. "It's a disgrace."

The draft health care overhaul plan from Finance Chairman Max Baucus, D-Mont., offers yet another one-year patch over the cuts. But because the formula categorizes that patch as a spending increase, there will be even more cuts in the future—which Congress will almost certainly try to stop.

The mandated cuts would set Medicare reimbursement rates so low that few, if any, members of Congress believe they reflect what physicians should be paid.

Protecting Cost Estimates
But punting on an overhaul of the physician payment system preserves a major virtue of Baucus' draft: It would reduce the deficit by billions of dollars over the next decade and even more in the future.

As a result, Baucus is content to ignore the issue; he said in May that a physician payment overhaul would not be included.

"Sen. Baucus has been a leader in addressing the problems with this formula, and it is an issue that continues to be important to him," a Democratic Finance Committee aide said. "The physician payment formula is a problem that Congress should address as quickly as possible to bring predictability and stability to doctors and other health care providers."

But the costs of eventually addressing the physician payment problem will be enormous.

According to a 2008 analysis by the Congressional Budget Office (CBO), merely freezing physicians' Medicare payment rates at 2009 levels would cost $318 billion over the next decade. Letting them grow at what CBO estimates is the current rate of medical inflation will drive costs much higher — up to $556 billion, well more than half of the cost of the Finance Committee's entire health care proposal. Even a modest revamp of the system that would make changes to how physician payments are calibrated would cost $185 billion.

Because of the staggering costs involved, deleting a physician payment fix is a popular idea with lawmakers.

"If you did it for the 10 years of the window, you're talking about $285 billion and you're talking about something that's impossible," said Charles E. Grassley of Iowa, the Finance Committee's ranking Republican.

Short-Term Fix
Instead, lawmakers are looking again at a short-term fix of a year or two. "The longer it can be, the better," Grassley said. "But we've been so used, over the last five or six years, to doing it for one year, or one year and six months, that it's kind of 'What do you have money to offset?'"

On Wednesday, John Cornyn, R-Texas, offered an amendment that would have created a three-year patch—which seems to be the maximum length the Finance Committee can find the funds for. The amendment failed, 9-14, but Democrats are looking for a way to get the policy into Baucus' bill.

North Dakota Democrat Kent Conrad said that it would cost about $15 billion more to add an extra year's patch to the current policy. "I think it would be very helpful to have the 'doc fix' for two years in the bill," he said Wednesday.

Efforts to address the physician payment system in the long run may eventually be proposed apart from a health debate, as part of an even bigger reset of several major federal budget items such as the alternative minimum tax, President George W. Bush's tax cuts and a package of tax extenders that Congress also deals with regularly.

"There's going to have to be a recalibrating of our long-term budget picture sooner rather than later," said Conrad, the chairman of the Senate Budget Committee. "And that's going to be part of it."

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