Kick the Medicare Doc Fix Down The Road

A similar version of this Health Alert appeared at Forbes.

Congressional leaders from both parties have agreed on a long-term, so-called “doc fix” that claims to solve the problem of how the federal government pays doctors who treat Medicare patients.

Currently, Congress has a certain amount of money every year to pay doctors. This amount of money increases according to a formula called the Sustainable Growth Rate (SGR), which was established in 1997. The SGR is comprised of four factors that (by the standards of federal health policy) are fairly easy to understand. Most importantly, the SGR depends on the change in real Gross Domestic Product (GDP) per capita.

The Medicare Part B program, which pays for physicians, is an explicit “pay as you go” system. Seniors pay one quarter of the costs through premiums, and taxpayers (and their children and grandchildren) pay the rest through the U.S. Treasury. Therefore, it is appropriate taxpayers’ ability to pay (as measured by real GDP per capita) be an input into the amount.

The problem is the amount is not enough. If growth in Medicare’s payments to doctors were limited by the SGR, the payments would drop by about one-fifth, and they would stop seeing Medicare patients. So, at least once a year, Congress increases the payments for a few months. The latest patch (H.R. 4302) was passed in March 2014 and runs through March 31, 2015. It costs $15.8 billion.

This has happened 17 times since 1997. Congress has never allowed Medicare’s physician fees to drop. So, why not pass a long-term fix? This would finally free politicians from having to grub around every year finding money to pay doctors, and they could turn their attention to loftier matters.

Actually, there are plenty of reasons to be skeptical of any “doc fix”, and certainly this one.

First, let’s get the strongest conservative argument for a fix out of the way: The status quo leads to an artificially low budget baseline. The Congressional Budget Office (CBO) estimates Medicare spending for the next ten years. Because spending on physicians is artificially low for at least nine of those ten years, the picture is very misleading. This was a cause of mischief in Obamacare: The cuts to Medicare written into the Affordable Care Act (ACA) are significantly smaller than they will have to be in reality, if Obamacare is to hit its spending targets.

This is a fair criticism of the SGR. However, patches to the SGR since the Affordable Care Act have been paid for by spending offsets. The success rate has been 98 percent, according to the Committee for a Responsible Federal Budget (CRFB). The major blemish was in last year’s patch.

Some $4.9 billion of the offsets in H.R. 4302 (about one-third of the total) were captured by advancing sequester cuts to Medicare – which had already been legislated – from 2024’s calendar year to fiscal year, moving them forward by three months. This brought them into the ten-year budget window the CBO uses. The CRFB rightly called this a gimmick.

However, as far as budget gimmicks go, this was a misdemeanor. It was a small timing shift in the final year of sequestration cuts. It cannot be used again. Further, any gimmicks in an SGR patch are less harmful than gimmicks to offset legislation that puts spending on a permanent, upward trajectory.

A second positive to the current proposal is that there is at least one good offset in the proposed fix: Preventing Medigap plans from covering beneficiaries’ deductibles. As my NCPA colleague Devon Herrick has written, these Medicare supplemental plans reduce patients’ sensitivity to the cost of their care. As a result, they cost Medicare up to one-third more than beneficiaries without Medigap plans do.

Nevertheless, the problems with this SGR fix are too great to overlook.

First, it is surely not possible for Congress to openly debate this fix by March 31. The process by which this fix landed in its lap illustrates why people distrust Congress. Apparently, Speaker John Boehner and Minority Leader Nancy Pelosi have been negotiating this for two months, behind closed doors. Out of the blue, we learned on March 19 that the House Energy and Commerce Committee and the House Ways and Means Committee had unanimously reported out a fix, which nobody had previously heard discussed in committee hearings.

If they want to pass this bill by March 31, it will still be a two-minutes-to-midnight panic drill. Instead of increasing spending for a few months, it will increase it for ten years or more. No wonder stories of this SGR fix being a lobbyist-fest are already coming out. National Review’s John Fund reported that UnitedHealth Group has hired a former aide to Representative Steny Hoyer, who has succeeded in inserting a policy rider that would favor the insurer in the Federal Employees Health Benefits plan.

Second, this fix costs $200 billion, much more than previous versions. In February, CBO estimated a hypothetical fix that increased physician payments by one percent annually would cost only $192 billion. The extra $18 billion is probably the extension of the Children’s Health Insurance Program (CHIP), which is currently funded through 2015. Republicans used to want to limit CHIP to those who truly needed it, and reduce the risk of breeding dependence.

Third, much of the offsets appear to be due to increased federal control of how doctors practice medicine. This is gussied up in fancy language about paying doctors for value. There will be more acronyms: “In addition to measures used in the existing quality performance programs (PQRS, VBM, EHR MU), the Secretary would solicit recommended measures and fund professional organizations and others to develop additional measures.”

Whether more acronyms will improve physicians’ performance is debatable. However, what is not debatable is that the Secretary of Health & Human Services, Sylvia Burwell, is satisfied with the power that current law (that is, Obamacare) already gives her over doctors. Just weeks ago, she announced:

…… a goal of tying 30 percent of traditional, or fee-for-service, Medicare payments to quality or value through alternative payment models, such as Accountable Care Organizations (ACOs) or bundled payment arrangements by the end of 2016, and tying 50 percent of payments to these models by the end of 2018.  HHS also set a goal of tying 85 percent of all traditional Medicare payments to quality or value by 2016 and 90 percent by 2018 through programs such as the Hospital Value Based Purchasing and the Hospital Readmissions Reduction Programs.

If Congressional Republicans have changed their minds about the limits of government’s competence to determine physicians’ value, it would be simpler for them just to leave Secretary Burwell alone to pursue her business plan.

Part of this increased federal control over the practice of medicine is a resuscitation of the failed Meaningful Use requirements for Electronic Health Records (EHRS). This program has spent $30 billion to install EHRs that have frustrated doctors and stymied innovation in health information technology.

Finally, the SGR is not the crisis that people think it is. There are worse things than politicians being forced to re-visit how they pay Medicare’s physicians, at least once a year. It is hard to identify what specific harm the SGR has caused, unless it is to force physicians’ lobbyists and politicians to bang their heads together on a regular basis. These physicians are not federal employees, they are privately employed professionals. I cannot think of any other privately employed professional whose payments are guaranteed by Congress to increase for ten years or more.

The Founding Fathers had this right: The U.S. Constitution forbids Congress from appropriating funds for the Army for more than two years. If soldiers can’t get a fix for more than two years, why should doctors?

SGR kicks the can down the road. But kicking the can down the road at least keeps it in sight. It’s better than kicking it over the guardrail and hoping it doesn’t hit anyone on the way down.

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