This week, the House Energy and Commerce Committee will consider solutions to Medicare’s flawed physician payment scheme. Physician payment is annually updated on the basis of the Sustainable Growth Rate (SGR), a special economic formula which, as configured today, would result in deep annual payment cuts.
This directly threatens seniors’ access to care as it becomes financially infeasible for doctors to continue to take new Medicare patients under progressively lower payments. The problem will only get worse in the future, and it represents one of the most poignant examples of the negative impact of central planning on doctors and patients under the current Medicare program.
The SGR was created in 1997 with the intention of putting Medicare spending on physician services on a sustainable trajectory. Under the formula, Medicare officials calculate physician payments every year based on changes in gross domestic product per capita, Medicare enrollment, and pricing. As Heritage Senior Fellow Robert Moffit writes, “The problem with this calculation is that the growth of GDP, or the state of the general economy, may have nothing to do with physicians’ activity or the costs incurred in providing a medical service to Medicare patients.”
Since 2002, the SGR has called for negative updates to physician payments, meaning physicians would be reimbursed less and less each year if the scheduled adjustments were allowed to go into effect. But this hasn’t happened—Congress continually delays the cuts. Scheduled reductions accumulate year after year, such that if the SGR were allowed to go into effect in January of 2012 (the expiration date on the most recent legislation to delay them), physicians treating Medicare patients would face a 29.4 percent reduction in payment for their services.
Allowing reductions of this magnitude would be hugely detrimental to the quality of care available to seniors under the program. In 2008, The Heritage Foundation explained that “The current Medicare payment system is financially unsustainable, threatens Medicare patients’ access to care, and adds to uncertainties about the adequacy of the future physician workforce.” For these reasons, Congress must clean up the physician payment mess it has created once and for all—and pay for it, too.
According to the Congressional Budget Office, holding physician payments constant through the end of this decade would add $276 billion to federal spending. Congress should pay for a permanent “doc fix” using savings in Medicare created under the Patient Protection and Affordable Care Act, rather than using them to offset the cost of new federal health care entitlements.
Then, as Moffit details, Congress should set payment increases on a more rational growth rate. First, he suggests, they should index physician reimbursement to inflation as measured by the Consumer Price Index, making physician payments stable and predictable for doctors and patients alike. Second, Congress should allow balanced billing by Medicare physicians, which was restricted by legislation passed in 1989. This would allow providers to charge patients for the remainder of the real cost of services that are not covered by Medicare. Third, Congress should require physicians to disclose their prices for medical treatments and procedures. Fourth, Congress should require the Medicare Payment Advisory Commission to conduct market surveys to determine areas and specialties in which physicians are being underpaid or overpaid, and to make recommendations to Congress on how to alleviate imbalances.
Beyond these changes in Medicare physician payment, Moffit argues that government should not interfere in any way with purely private agreements between doctors and patients for legal services that do not involve taxpayer funding. Moffit writes, “Congress should also allow doctors and patients to go outside of the Medicare program and contract privately for Medicare services without statutory or regulatory obstacles.” Private contracting was statutorily restricted by the Balanced Budget Act of 1997, and that legislative restriction was imposed on no other government health program.
Ultimately, problems caused by the flawed SGR are but a symptom of flawed central planning and bureaucratic micromanagement of seniors’ care under Medicare. Reforming the program and changing it to a defined-contribution system, like Medicare Part D, would not only resolve the physician payment mess, but it would address other mounting concerns, such as the program’s financial insolvency and its inability to achieve greater efficiency and better value.