Bipartisan Medicare Reform: Debt and Deficits, All the Way Down

The extremely flawed so-called Medicare “doc fix” has passed. Its direct consequences include increasing federal government control of the practice of medicine and increasing deficits by at least $141 billion through 2025. However, it also has implications far beyond Medicare’s physician fee schedule, to post-Obamacare reform and general governance. Let’s tackle the fee schedule first. This “doc fix” was promoted as solving the problem that Congress has to increase Medicare’s physician fees at least once a year beyond the rate of growth originally legislated in 1997. If this did not happen, physicians’ fees would drop by about 20 percent, and they would reduce Medicare beneficiaries’ access. This “doc fix” abolishes the 1997 formula in favor of fixed, nominal rates of growth. As a consequence, the fee schedule is not “fixed” in the sense that it is “solved”. It is “fixed” in the sense that Congress has dictated the total amount that will be paid to physicians in future years. It will go up 0.5 percent per year from 2016 through 2019. Then, the amount freezes, and doctors enter a war of all against all, competing against each other for shares of an amount that will inexorably shrink in inflation-adjusted terms. It gets even more bureaucratized after 2025, but there is no point thinking about that because the whole thing is almost certain to unravel before then. “Fixing” the fee schedule cannot possibly be the actual goal of the legislation. Even without inflation jumping up unexpectedly, the real value of the fees earned by physicians will drop enough by 2020 that it would be very surprising if they did not curtail appointments for Medicare beneficiaries, resulting in the same crisis we face today. So, the Obamacare coalition which pushed this bill so hard will be back within five years, asking for another hike. The actual goal of this legislation was to get large bipartisan majorities to vote for an expansion of the Medicare entitlement with no plan to pay for it. So, when the lobbyists do come back for more money in a few years, the precedent will be settled, and there will be little or no resistance to whatever they ask for. This fiscal irresponsibility was baked into the bill at the start. It is section 525, two short sentences that exempt the spending from the PAYGO (“pay as you go”) scorecards. If legislation results in spending that is not paid for within that bill, it is added to the five and 10-year PAYGO scorecards so the equivalent amount has to be sequestered from spending over time. This is the default setting. To exempt a spending bill from PAYGO, Congress has to deliberately insert such a clause. Senator Mike Lee (R-UT) proposed an amendment to remove these two sentences from the bill, thereby subjecting the spending to PAYGO. It lost 42-58. Republicans who voted against were Lamar Alexander, Shelley Moore Capito, Thad Cochran, Bill Cassidy, Susan Collins, John Cornyn, Lindsey Graham, Orrin Hatch, Dean Heller, Mitch McConnell, David Perdue, and Thom Tillis. Senator Jeff Sessions (R-AL) declared that the bill broke no fewer than eight of the Senate’s budget rules, in his comments on the Senate floor. The real shame of this is that federal spending has been below the sequester limits for a couple of years. Indeed, the latest report from the Office of Management and Budget (OMB) reported that legislation enacted in the second session of the 113th Congress resulted in $15 billion of savings to 10-year PAYGO scorecard. Adding the so-called “doc fix” to the PAYGO scorecards would have been a relatively painless way to finance

it. This Congress’ credibility on fiscal issues is seriously jeopardized. House and Senate Republicans are now conferencing on their budget resolutions, hoping to produce a unified resolution that will show how they will govern if given the chance. Which of their documents are we supposed to take seriously: The one which cannot be enacted in to law during this Congress; or the one that they rushed to President Obama’s eager pen, which promises deficits for as far as the eye can see?

Comments (6)

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  1. charlie bond says:

    Good morning John,
    The Doc fix really fixed us. It is a prime example of why health care needs to be reformed from the bottom up, not the top down. The politicians need to return to something they know, like gerrymandering, and let’s tackle health care one person at a time, one community at a time. We can do that by first incentivizing individual responsibility for one’s own health. Then we must realize that we must not only take care of ourselves, but of others. We need to help our neighbors. Then communities need to regain control over the delivery of health care and interject common sense and real pricing.
    The SGR fix is predicated on the proposition that megadata can replace patient care, logic and compassion. The drive for data, which is caused by our lack of cost-based pricing) is creating sand castles that are growing higher and higher. The cost of this data-gathering is pushing the agglomeration of the health care industrial complex and is only creating health care giants that will be “too big to fail.” But fail they will, because health care at the local level is irrationally structured and irrationally priced.
    I have repeatedly said that health care is the biggest bubble in economic history, and the SGR fix may have been the syringe that pops that bubble. We are all in that bubble, so we should care deeply about this very, ill-conceived legislation.
    Charlie Bond

    • They love, really love, Big Data. And the cost of acquiring, slicing and dicing it, keeps going down. It is an unfortunate consequence of IT innovation.

  2. Ronald Feldman MD says:

    I agree with Charlie Bond. The burden of ever-increasing regulations, lower fees, and costly micromanagement of everything we do in practice, combined with electronic record mandates leaves very little time for the necessary personal interactions with patients.
    Many physicians will be forced to drop all 3rd parties or leave practice.

  3. charlie bond says:

    Dr. Feldman,
    This exodus is already happening as hospitals are gobbling up medical practices. The problem is that the goal of cutting costs is not enhanced by this migration. Not only are hospital-employed physicians able to charge more than private practitioners, but a recent Kaiser Family Foundation study shows that patients treated by a hospital-employed physician wind up with overall bills that are nearly 20% higher than patients treated by private practitioners.
    The real dilemma for health care delivery systems–especially hospital systems–is that under new cost-saving payment methods, such as ACO/gainsharing, the hospital is a huge cost center. The future of physician reimbursement (if properly organized and negotiated) is reducing hospital costs. Oops. That will create a bit of a conflict if physicians (who have the power of the pen) have to cut their employer’s revenues.
    Indeed, the best strategy for hospitals is not to hire a tight exclusive referral base (e.g. employed physicians), but to be inclusive. With admissions inevitably declining, hospitals need to return to their original model of being a facility that welcomes as many referring physicians as possible. The more physicians admitting patients, the greater the volume.
    From a larger policy point of view, the government should be encouraging decentralization rather than consolidation. Without question, the decentralized market creates the maximum competition for providing the most cost-efficient care. Most scholars who have paid attention to the trends reject the old rationale that consolidating health care delivery will enable the government and payors to negotiate lower rates. All it does is give health systems more clout in the negotiations. We see this clout in numerous markets (e.g., here in California ) and in other areas where there are only one or two hospitals in a region.
    Lost in this mighty shell game of money, politics and power is the poor patient. Increasingly, the complexity of health care is resulting not only in confusion but in poorer outcomes. For example, isn’t it amazing that both sides of the aisle endorse ACO’s when none of the scholars, lawyers or consultants in the field can consistently and accurately define the characteristics of ACO’s. They are variable in structure and in outcomes. More amazing is that ACO’s are not accountable to patients. There is no means or mechanism for involving the patient in creating the savings or participating in the gainshare. Yet we know that patients are the biggest driver of costs and outcomes. The obvious innovation needed is to make patients part of ACO’s. If patients/consumers had a real stake in how providers organize and deliver care, things would change from the ground up. We have already seen how self-insured employers can change health care for the better. With increasing deductibles and lower coverages, it is time to make the patient a participant. After all, it is their care.
    Anyone interested in implementing this concept should feel free to contact me. We are trying to build teams community by community to change the paradigm of reform, from top down to grass roots up.
    Charlie Bond

  4. Angel Guevara M.D. says:

    There was a book “Helping parents to help their children”. What we need is to help people to learn about and take care of their selves. We must work on a health promoting society, now we are in a health repair society. I agree with Ch B.

  5. John Fembup says:

    ” This Congress’ credibility on fiscal issues is seriously jeopardized”

    I agree, but it’s not clear (to me at least) whether you are suggesting it’s because of the most recent fumbling attempt at Medicare “reform”. I think the current doc fix only confirms a long-held and growing public dissatisfaction with a weak and ineffective Congress in general – not limited to fiscal issues. The doc fix thing is just another reason to wonder e.g., if the first 50 names in the Boston telephone directory might actually do a better job than our esteemed Congress.

    Anyway, according to Gallup less than 20% of the public presently approve of the job Congress has been doing. Compare to 2003, when Gallup measured public approval of congressional performance at roughly 50%. The decline over the past decade+ does not seem to depend on a single issue, or a single type of issue, nor for that matter on whether Congrssman is Democrat or Republican. This history can be found by googling “Congress and the public Gallup”.