Backsliding on Physician Pay

When Democrats move a bill in the spring to "fix" the cuts doctors are scheduled to take under Medicare, Senate Republicans would be principled to stage a filibuster. Not as political retribution for the support doctor groups threw behind ObamaCare--but in the name of saving Medicare and supporting the long-term interests of the medical profession.

Yesterday, Senate Majority Leader Harry Reid reneged on a promise to reform the way Medicare pays physicians. Indeed, the American Medical Association endorsed the Obama health plan in large part for a promise from the Obama team that the system by which doctors are paid under Medicare would be permanently fixed. In the end, not only wasn't that system reformed, doctors weren't even given much of a short-term reprieve. Now Medicare providers are facing a 21% cut in what they are paid under Medicare, taking effect this spring. Doctors won't even get a promised short-term hike in Medicare's current rates.

The issue, as most know, is the formula used to set doctor pay under Medicare--the ironically named "sustainable growth rate" or SGR. That formula is essentially a price-setting scheme originally was designed to control Medicare utilization by reducing physician fees.

Starting in 2010, doctors' fees are scheduled to fall by a whopping 21.5%, and about 40% over the next five years.

The scheme lets doctors work out how each physician should be paid for particular treatments and interventions, so long as the aggregate increase in total spending on pay doesn't grown faster than certain targets. Created in 1997, the SGR mandates cuts in Medicare reimbursements if medical costs rise too steeply, as they always do. If the resulting cuts actually took hold, it would force many doctors to stop seeing new Medicare patients.

So Congress intervenes every year and temporarily overrides the reductions. But when they've done so, the underlying gap between what doctors are owed under the formula and what they are paid has only grown wider each time. So now, starting in 2010, doctors' fees are scheduled to fall by a whopping 21.5%, and about 40% over the next five years.

Medicare already pays doctors about 75% on the dollar compared to private plans. In some cases, the program doesn't even cover doctors' costs. Yet taken out of the final legislation that Senator Reid released yesterday was not only a proposal to permanently fix the SGR, but Section 3101 of the manager's amendment that Senator Reid released strikes a provision in the original bill that provides for a 0.5% increase in Medicare reimbursements to physicians. To wit, the new text reads: "SEC. 10310. Repeal of Physician Payment Update: The provisions of, and the amendment made by, section 3101 are repealed."

Meanwhile, the Department of Defense Appropriations bill that the Senate passed Friday freezes Medicare physician payment rates for January and February of 2010 at 2009 levels, returning to the scheduled 21% cut to reimbursement rates that doctors are set to take on March 1, 2010. Democrats included the temporary reprieve in the Defense bill to get its $18 billion cost off the health reform bill. In the end, they not only couldn't muster a sustainable reform the system (one proposal would have cost $250 billion). Democrats couldn't even come up with a temporary, 0.5% year-over-year doctor pay increase.

Not that anyone deserves a pay hike this year. But then the support doctor groups gave to the Obama plan was always shortsighted, conditioned as it were on a single issue. ObamaCare is stocked with other provisions that punish doctors in ways that will ultimately harm patients. This includes a scheme for cutting the pay of doctors who "over-utilize" tests and treatments and end up being "high cost" providers; new mandates that will increase overhead costs for small practices; and payment schemes deliberately designed to incent doctors to give up their individual practices, and become salaried employees of hospitals or staff model health plans.

In the end, what should be said of a health "reform" bill that passes on the chance to address such a core problem as physician payment rates?

Democratic leaders probably needed all the money they could find in order to pay for handouts that would secure the vote of Ben Nelson (D, NE) and a few other Senate holdouts. Keeping the doc fix out of the bill, of course, was also the way to make the bill appear that it would reduce the deficit. So the physicians got raided. Yet the only way the SGR is going to be permanently reformed is if Congress is barred from playing politics with this issue. Barred from merely passing additional, short term fixes and is instead, forced to consider reforms based on some market principles rather than prices set in Washington.

True that these reform ideas are unlikely to prevail in our current political environment. They are still worth fighting for. It would involve some measure of private payments for physicians and true supplemental insurance for covering more routine Medical services under Medicare. That way, outpatient payment rates (doctor fees) could be set by competing insurance plans rather than a central government bureaucracy.

There are ideas that have been put forward for this kind of enduring reform. They are part of past proposals for placing Medicare on a more sustainable fiscal path. Fundamental change should be the price Republicans extract for supporting a fix to the SGR.

Some physicians would complain and level their angst against the Republican holdouts. But then some physicians have thrown their support behind ObamaCare without ever reading its many mandates that will soon befall their practices.

Other doctors will understand the principles that are at stake, and why Republicans are fighting for an enduring change from our current approaches. Simply replacing one government price setting scheme for another, as now seems in the cards, is only a formula for future failures.

Scott Gottlieb, M.D., is a resident fellow at AEI.

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