• The Heritage Network
    • Resize:
    • A
    • A
    • A
  • Donate
  • Doctors Need a Permanent Fix to the Medicare Payment Mess

    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.

    Posted in Obamacare [slideshow_deploy]

    6 Responses to Doctors Need a Permanent Fix to the Medicare Payment Mess

    1. George Colgrove VA says:

      Again, this government is dead set on spending foolishly – NIH will be constructing a quarter of a billion dollars of ARRA funds on a 306,000 sq ft facility which will be, like the DoD BRAC buildings state of the art and quite luxurious. The cost of this facility will dwarf the extreemly high construction costs of the Alexandria BRAC at $870/sq ft. Things are spiraling out of control!

      http://nihrecord.od.nih.gov/newsletters/2010/08_2

      We will not get an handle on what the federal workforce is doing to us until we can stop these lavish construction project that were created to house the added 800,000 new overpaid federal workers added since 9/11/01.

      Typical office building construction in the private sector ranges from $100 to $150 per sq ft. Luxury office space can go from $200 to $250 per sq ft.

      How did we get to a point where the private sector who foots the bill for this excess cannot even afford luxury any more – unless of course you are a federal contractor – also feeding of from the impoversed taxpayer and the national debt – when at the same time these tax collectors are putting up palaces?

      I am seeing parallels to the tyrantical countries we have invaded as of late. The people are poor, yet the tyrantical government workers live and work in the lap of luxury. You look at where these federal workers live, and the lavish work environments they are creating for themselves, it looks like we are definitely heading in the wrong direction. It is clear federal workers no longer see their role as stuards of the public trust. They are greedy and will go for and take all that they can for their personal gain.

      It is things like this that makes me think that there are very little crisises going on. It they demand we fork over out current tresure as well as our future treasure for these kinds of excess, then there obviously is way too much money floating around for healthcare.

      There is a lot more to fix then medicare/medicaid. We need to fix the culture that created these messes – who is the same crowd that created this needless project. We the people are losing out and it will cost us a country!

      It looks like these feds cannot let a crisis (9/11/01) go to waste.

    2. Leon Lundquist, Dura says:

      I get steaming mad when I think of the Intentional destruction of American Medicine embodied in the Doc Fix Failure. Doctors are that special class of 'The Rich' which Progressives must knock flat! This is outright theft, outright destruction of American Business one Doctor at a time! How a government can call itself lawful and refuse to pay the hands on Providers! It is Stalinesque, grotesque in fact! Plain stealing, and nothing less than Crime (considering Obama and Gang always serve a Foreign Interest!) I don't like a Government picking winners and losers. I don't want any Americans knocked flat! The raw destruction of American Medicine is the destruction of Medical Careers, still born in the way Medical Students are disuaded from it AND soft murder of individual businesspeople!

      Truth is I cannot exaggerate the harm this Administration is doing! Maybe the neo Stalinists are kinder and gentler Communists? Instead of killing people they just take everything they will ever have. Aw! Isn't that awfully sweet and cuddley? Nice Communists this time, they only want to enslave us! Yeah! Sure!

    3. Joan, New Mexico says:

      While you are analysing govt. policy of the early 1990's Ms. Nix, you may well investigate the antagonistic removal of 1st amendment free speech rights from physicians (IPAs) by the FTC and DOJ which went into overdrive under GHW Bush. Over 18,000 physicians have been prosecuted (with bipartisan suppport) for the "crime" of trying to reject Medicare based pricing policy when negotiating with big Health Insurance companies (in order to actually make a living).(see S.M. Oliva" reason.com "Dec 2010) The health insurers with the aid of CMS and academic economists have been seeking a new business model for two decades. All of the wage and price control machinations have failed, or will fail(capitation, HMO PPO ACO). The goal is to end fee for service. The insurance industry will become a "utility" with little govt. oversight. This is their goal. They are suppporters of Obamacare. Nobody is stopping them.

    4. Joe Biela, NY says:

      After reading your article, it came to mind that, under the due process clause of the 14th Amendment to the US Constitution, I have the Constitutional right to travel (abroad as well as interstate). As an extention of this right of interstate travel, I assume that I also have the Constitutional right to re-locate to another state. However, if more and more physician's would choose not to accept new Medicare patients, wouldn't my "right" to re-locate to another state be "affected" (impacted) by the difficulty (perhaps impossibility) of finding of physician of choice (or at all) were I to re-locate to another state…once I become Medicare-eligible. It seems to me that I would be placed in the absurd position of having to determine first whether or not I could obtain physician care in a different state before actually re-locating to that state!

    5. Allen H Phila, PA says:

      There is one problem doing away with the docfix-it doesn't fit into Obama's scheme and his wacky numbers. Remember, Obamacare is going to save tens of billions of dollars over 10 years! Forget about that he is paying for it with TAXES! Forget that those laughable projections aren't worth the paper they are printed on.

      Doctors need to be paid for their services. If not, there will be a drastic shortage of primary docs (already are!) This situation needs to be corrected-but it would require Obamacare's house of cards to collapse. When I first heard of Ryan's plan for Medicare, I was thinking he is off his rocker. But the more I review his plan, the more it makes sense. Health care, incIuding Medicare Supplement Plans, must be transparent, with consumers having as much skin in th game as possible. (I just think it is political suicide).

    6. Bobbie says:

      GET RID OF GOVERNMENT AND INSURANCE AND HAVE THE DOCTORS SET THEIR PRICES!

    Comments are subject to approval and moderation. We remind everyone that The Heritage Foundation promotes a civil society where ideas and debate flourish. Please be respectful of each other and the subjects of any criticism. While we may not always agree on policy, we should all agree that being appropriately informed is everyone's intention visiting this site. Profanity, lewdness, personal attacks, and other forms of incivility will not be tolerated. Please keep your thoughts brief and avoid ALL CAPS. While we respect your first amendment rights, we are obligated to our readers to maintain these standards. Thanks for joining the conversation.

    Big Government Is NOT the Answer

    Your tax dollars are being spent on programs that we really don't need.

    I Agree I Disagree ×

    Get Heritage In Your Inbox — FREE!

    Heritage Foundation e-mails keep you updated on the ongoing policy battles in Washington and around the country.

    ×