Paying For A Permanent, Or Semi-Permanent, Medicare Physician Payment Fix

Abstract

Editor's note: In addition to Mark McClellan (photo and linked bio above), this post is authored by Keith Fontenot, Alice Rivlin, and Erica Socker. Fontenot is a visiting scholar at the Engelberg Center for Health Care Reform at the Brookings Institution; he served as Associate Director for Health Programs at the Office of Management and Budget, and his three-decade government career included work at OMB, the Centers for Medicare and Medicaid Services, the Congressional Budget Office, and the Social Security Administration. Rivlin is a senior fellow in the Economic Studies Program at Brookings, a visiting professor at the Public Policy Institute of Georgetown University, and the director of the Engelberg Center; she was founding director of CBO, served as OMB director, and was Federal Reserve Vice Chair. Socker is a research associate at Engelberg. Bipartisanship has reappeared in health care reform. The three major committees with jurisdiction over Medicare policy have come together around a bipartisan, bicameral framework to change the way the Medicare program pays physicians. The reforms move Medicare’s reimbursement of physicians away from fee-for-service, which pays doctors based on the number and intensity of services they provide, toward paying them for producing better care, keeping patients healthy, and lowering overall costs. We’ve described these reforms in Medicare’s sustainable growth rate (SGR) payment system previously. But one critical obstacle to enactment remains: Congress must come up with a way to pay for the legislation, which will likely cost around $130 billion to as much as $170 billion. The vast majority of this additional spending would be needed to offset the scheduled payment cuts under the existing SGR formula, which reduces physician payment rates automatically when physician-related Medicare spending exceeds the growth rate of the economy. While the SGR system had a laudable cost-control goal, relying on across-the-board payment cuts has not worked out as planned in practice. Congress has passed short-term patches to delay the cuts in every year since 2002, and the gap between actual Medicare spending and the SGR target spending is now so large that a 24 percent cut in physician payment rates would be required when the latest patch runs out. That deadline is looming again on April 1, so progress on “pay-fors” is needed soon to avoid another patch. Here, we describe the key costs in the physician payment reform legislation. We then describe ways to pay for these costs that could provide an effective policy and political path forward. From a policy standpoint, our proposals share the goal of the legislation to promote better care and avoid payment rate cuts. It would be ironic to fund the physician payment reforms intended to move away from fee-for-service payments for physicians simply by cutting payment rates for other health care providers in Medicare. From a political standpoint, our proposals reinforce the bipartisan goal of better care in Medicare, and they are based on proposals that have had some bipartisan support in the past. Even so, $130 to $170 billion is a big hurdle. Consequently, we also outline a “semi-permanent” physician payment fix as an alternative to yet another short-term SGR patch if bipartisan agreement on how to pay for the costs of the permanent legislation is not possible.