Doc Fix Money from Prevention to Pay Physicians

Earlier this month, President Obama signed legislation (H.R. 3630) that includes a 10-month doc fix.  The $143 billion package delays the Medicare rate cut, which would have been nearly 30%, until the end of 2012. 

After a rare compromise between Republicans and Democrats last week, the bill passed through the House and then Senate, making its way to the President’s desk. To fund the $18 billion doc fix, the agreement includes health-related offsets that would save $21.2 billion over the next ten years. 

The measure will cut:

• $5 billion from the prevention and public health fund created by the federal health reform law;
• About $4.1 billion in Medicaid payments to hospitals with a disproportionate number of uninsured patients;
• Payment rates for clinical laboratory services by 2% in 2013, to save an estimated $2.7 billion over a decade;
• $6.9 billion in “bad debt” payments to hospitals when Medicare beneficiaries do not pay for services; and
• $2.5 billion in Medicaid funding to Louisiana, which received increased funding from the overhaul 

If enacted, inpatient acute care hospitals will see Medicare bad debt payments reduced to 65 percent beginning in fiscal year 2013, down from the current 70 percent, AHA News Now reported. Critical access hospitals also will see a payment reduction to 65 percent, down from 100 percent, over three years.

“While we support ensuring that physicians will not see their Medicare payments reduced, we are extremely disappointed that once again Congress is putting seniors’ access to hospital services in jeopardy through arbitrary reductions to hospitals. Today’s proposal would add an unnecessary strain to hospitals that care for vulnerable populations,” American Hospital Association President and CEO Rich Umbdenstock said yesterday. 

Calling the cuts “shortsighted,” Umbdenstock said the budget would hurt low-income senior patients. “We need thoughtful approaches to improving health care not indiscriminate cuts that harm patients’ access to care,” he continued.     

Background 

As explained by Kaiser Health News, the “doc fix” is a result of yesterday’s budget panacea – a 1997 deficit reduction law that called for setting Medicare physician payment rates through a formula based on economic growth and known as the “sustainable growth rate” (SGR).  For the first few years, Medicare expenditures did not exceed the target and doctors received modest pay increases.  But in 2002, doctors reacted with fury when they came in for a 4.8 percent pay cut. Every year since, Congress has staved off the scheduled cuts.  But each deferral just increased the size – and price tag – of the fix needed the next time. 

The formula also reinforces what many experts say are some of the worst aspects of the current fee-for-service system – rewarding doctors for providing more tests, more procedures and more visits, rather than for better, more effective care.  In an Oct. 14 letter to lawmakers, the Medicare Payment Advisory Commission (MedPAC), which advises lawmakers on Medicare payments, called the formula “fundamentally flawed” and said it “has failed to restrain volume growth and, in fact, may have exacerbated it.”

Congress has avoided fixing this problem because it would cost about $316 billion to stop the doc fix cuts over the next decade and Congress can’t agree on where to find that kind of cash.  

Physician groups continue to lobby Congress to enact a permanent payment fix. The deal Congress just passed would stop a 27 percent pay cut scheduled to begin March 1 but did not raise the level of Medicare reimbursement to physicians. 

Last October, MedPAC recommended eliminating the formula without increasing the deficit by cutting fees for specialists and imposing a 10-year freeze on rates for primary care physicians. That proposal was strongly opposed by health industry groups, as well as the American Medical Association (AMA). 

The AMA has recommended a five-year transition fee scale that allows time to test new payment approaches, including several being tested as part of the 2010 health care law.

Several other options have been offered to fix the reimbursement scheme, including proposals by Rep. Allyson Schwartz, D-Pa., and the White House, but none has generated strong bipartisan interest. 

The Doc Fix is the gift that keeps on giving.  As long as physicians are protecting their turf from huge pay cuts, there is little to no chance of increases in the physician payment formula.  Also as long a this is an issue physicians will stay engaged in public policy debates.