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Doc Fix Debate Missed Opportunity to Reduce Hidden Tax From Higher Reimbursement Rates

One of the elements of the House GOP’s year-end bill is the “doc fix,” which would avoid the current reimbursement schedule for Medicare doctors. If nothing happens, doctors would see a 27% cut in their reimbursement rates, which would undoubtedly cause many to stop seeing Medicare patients.

To avoid this, the House GOP bill spends about $39 billion for a two-year restoration of current rates. It’s paid for by cuts elsewhere in the Medicare and overall health care system, through means testing of wealthier Medicare recipients, a raid of $8 billion of the Prevention and Public Health Fund instituted with the Affordable Care Act, and another rise in the level of clawbacks for exchange subsidies (this technique has been used to pay for other priorities at least two other times in this Congress; in fact, the last doc fix was paid for through these types of clawbacks, which will force subsidy recipients who earned over the limits for subsidies throughout the year to give back a larger portion of the money).

But the House GOP bill represents a high-risk gamble, and if it falls apart, the new reimbursement rates would go into effect January 1. The medical community fears the implementation of the rate cut.

The Centers for Medicare & Medicaid Services can buy Congress a little breathing room — as it has done before — by holding physician payments for a brief period in the new year if it looks as though Congress will move quickly to update the fee schedule.

Just don’t expect it to be easy — for either CMS or the doctors.

“It’s definitely a nightmare” to do this, said former CMS Administrator Tom Scully, who used the trick in 2003. “Docs don’t get paid, and CMS gets millions and millions of claims backed up.”

But he added that it is “a far bigger nightmare” for CMS to send out reduced claims, and then go back and pay doctors the difference, if Congress passes a retroactive increase in the payment formula.

Notice that the retroactive fix is assumed here. And with good reason: the medical lobby carries a lot of power. Since the enactment of the flawed “Sustainable Growth Rate” for Medicare, which would have cut reimbursement, a doc fix has been implemented every year. In 2010, there were two doc fix expirations, but Congress quickly passed a solution and applied it retroactively.

But let’s be clear on how a functioning government bureaucracy would handle this situation. Right now, doctors face a 27% rate cut if nothing is done. The cost of Medicare is seen as a growing problem over time that would necessitate either an increase in payments or a reduction in costs. Here is a perfect moment to get some of the latter.

Among the many options for the doc fix are a couple plans that lean in this direction. The Medicare Physician Payment Innovation Act from Allyson Schwartz (D-PA), keeps physician pay at the same level through 2016, but then gives HHS the authority to come up with a new payment model for doctors, beginning in 2018. Doctors who chose to stay on the current fee-for-service plan would see their reimbursement drop. MedPAC, the advisory board for Congress on Medicare, has a similar, if less detailed plan. It recommends that Congress enter into negotiations with doctors on new payment rates, and it seeks various cost reductions through that negotiation.

Both of these ideas would cost money, though not nearly as much as coming up with a patch every year to keep things the way they are, potentially with small increases in reimbursement. But this reflects a total giveaway of leverage. Doctors will see major cuts right now if nothing happens. In a negotiation setting, that’s the perfect time to put together a package for reductions in reimbursement rates.

Congress could also threaten to institute a “free trade agreement” for professional services like medicine, similar to what Dean Baker proposed in his new book The End of Loser Liberalism. In it, he offered the idea that doctor salaries would drop if forced into competition with competitors overseas, whether through allowing more high-skill doctors into the country through immigration or facilitating more medical trade. Congress actually holds the power here if they were willing to use it, and they could reduce the pay of US doctors, who have a standard of living over double that of their overseas counterparts. As Baker writes:

…an average family of four is effectively paying a tax of $1,200 a year to allow doctors in the United States to enjoy higher living standards than doctors in other wealthy countries. The savings from eliminating these excess physician salaries far outweigh the revenue to be gained from ending the Bush tax cuts on the wealthy.

The perfect time to negotiate these changes, made gradually over time, is now, when doctors face a serious reduction in their reimbursement rates. But that’s never been how out system works. Medical lobbies wield power and bend Congress to their will, not the other way around. I’d call that a mistake.

The other problem here is that doctors have a choice of refusing Medicare patients if their reimbursement drops. They can choose to take other patients instead and maintain their standard of living. If this were a single-payer system, that leverage would fade away. But again, we don’t have a sane way of thinking about these issues.

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David Dayen

David Dayen