• The Heritage Network
    • Resize:
    • A
    • A
    • A
  • Donate
  • Junk the Medicare Physician Payment Formula

    In January 2012, Medicare physicians face a 27.4 percent cut in their payment for treating senior and disabled citizens.

    Congress, as it has routinely since 2003, is feverishly preparing legislation to stop its own goofy Medicare payment formula from going into effect. If they don’t succeed this year, seniors can be assured of severe problems accessing physician care.

    The reason Congress goes through this silly routine almost every year is that it is unable or unwilling to make serious changes in the Medicare program. Today, Medicare payment for doctors is determined by a complex fee system, the Resource-Based Relative Value Scale (RBRVS), in which payment is tied to a social-science measurement of doctors’ estimated time, energy, and resources in providing a medical service.

    While the Reagan Administration (naturally) opposed RBRVS, its advocates sold it (incredibly) to the Bush Administration and Congress in 1989 as a “scientific” way to pay doctors. So the government sets the fees for over 7,000 medical services, and that payment is further restricted by price controls. Since 1989, doctors cannot legally charge Medicare patients more than government officials say.

    On top of this bureaucratic monstrosity, Congress enacted in its 1997 Balanced Budget Act a special formula for updating the Medicare physician payment: the Sustainable Growth Rate (SGR) formula. The idea was to ensure that Medicare physician spending does not exceed the growth in the economy. It’s complex, but basically if physician payments are less than economic growth in any given year, then physician payments would automatically increase the following year. If physician payments exceed the growth in any given year, they are automatically reduced the following year.

    Since 2003, Congress has routinely stopped the doctors’ payment cuts from going into effect. But delays have a cumulative effect and result in even deeper cuts and higher costs the following year. CBO has recently estimated that an update, based on the standard Medicare Economic Index, would amount to a 10-year cost of $352.7 billion. For that reason alone, Congress should permanently fix or repeal the SGR.

    Urgent Action

    In the short term, as Congress prepares to yet again stop the imminent cuts from going into effect, it should pursue the following policy changes:

    • Offset any costs associated with this “fix” with dollar-for-dollar spending cuts, including delaying upcoming Obamacare spending provisions;
    • Eliminate restrictions on physician balanced billing, enabling doctors to charge more than the capped Medicare amount;
    • Require physicians to disclose their fees for their medical services beforehand, making price transparency the legal precondition for the balanced billing of Medicare patients; and
    • Authorize the Medicare Payment Advisory Commission, the panel advising Congress on payment issues, to make additional recommendations in paying for medical services in special cases, based on market surveys, so Congress could enact them on an expedited basis.

    The Right Policy

    The right policy is to transition Medicare into a premium-support system within the next five years and junk the SGR altogether. Traditional Medicare would compete with other health plans, and the newly created Centers for Medicare and Medicaid Innovation could devise a new physician fee schedule for doctors who contract with the traditional Medicare plan. That fee schedule would reflect its premiums in a competitive market.

    The routine alternative is more of the same insanity. Putting off real change incurs bigger risks and bigger costs. Doctors are trying to serve Medicare patients while coping with Medicare’s lower pay and the hassles of a cumbersome and oppressive regulatory regime. And the future for doctors looks even worse under Obamacare.

    Posted in Featured [slideshow_deploy]

    8 Responses to Junk the Medicare Physician Payment Formula

    1. JeffC says:

      Doctors should be allowed to charge whatever they consider fair … Medicare pays x the paitient pays the difference if they want THAT doctor to treat them … otherwise doctors will simply stop treating Medicare paitients (until Congress makes it mandatory, then they simply leave medicine)

      • Layton Lang says:

        Jeff, where are all of these physicians going to go and work if they leave medicine? Wall street? If physicians charged whatever they wanted, even more of us would be bankrupt. there has to be price controls on the system.

        • m worrall says:

          Actually if I charged patients directly and they paid me immediately after being seen (like in the store), I could eliminate more than half of my overhead expense and reduce my fees by 30% tomorrow…. The system as we know it forces doctors into becoming business people… we have to interact with insurance companies, obey extensive government regulations, hire lawyers and accountants….

          Being paid by patients directly would eliminate my billing and accounting departments, eliminate most of my accounting and legal bills, eliminate most administration, and let me eliminate 2/3's of my employees.

          Also by eliminating Medicare and Medicaid, I could eliminate the associated documentation requirements, get rid of the RAC auditors, and avoid the daily possibility of going to jail or being if my documentation falls short of the medicare guidelines..

          And yes…. those of us went into medicine and were top of our college and high school classes can easily do something else…. many of my colleagues already have. A fee cut in January will guarantee the egress of more people from medicine…. starting with the most talented … and most experienced, the older docs who have saved up enough to switch careers.

          • Cmahney says:

            Amen. Go to the wotre and buy 80 dollars worth of food, at any age, and say to the grocer, nope I'll only pay you sixty bucks. You'd be laughed out or escorted out of the store.

    2. ben says:

      Doctors are Slaves!! You don’t’ believe me. Doctors are forced to see un-insured patients. Doctor can be sued by the same un-insured patient. doctors must follow through to make sure patients are cared for despite the finances. Doctors can not refuse care. Congress has been carrying their medical or uninsured people by doctors because they can’t afford to pay for the services. Doctors can’t strike. Doctors can’t unite (against the law, thanks to congress and lobbyist and Lame AMA misfits). Insurance easily refused to pay. Insurance co. rejects every request, and patients are upset at the doctors instead of the insurance co.

    3. Jeanne Stotler says:

      Doctors can refuse to take Medicare and Medicaid patients, they cannot refuse to give emergency care, BUT tis doesn't apply to private practice. My Mericare supplement went up last year and I got a letter yesterday saying if the cut goes through, they will raise rates again, good-by Soc. Sec. increase, Part B is going up and so is supplement means less not more for retirees, hits hard on widows like me who depend on this to get by. If Ins. CEO's were not getting theit golden parachutes and coverage for live etc. Insurance would not cost so much, also WHY is a clerk deciding he knows more what you need than the MD attending you??

    4. Tom Padamonsky says:

      Obama should volunteer his family and mandate all members of congress and other political appointees be removed from their current medical coverage and placed under Medicare. Remove the part excluding congress from Medicare.

    5. GRL says:

      New medicare entitlement rules:

      Take the total cost of medicare …

      Distribute 1/3 the amount directly to beneficiaries in the form of a monthly account.

      Eliminate all insurance forms; third party documentation rules, and third party over site pay. All medical cost are paid directly by the beneficiary. (Eliminates the 100-150 billion dollars of systematic criminal fraud of criminals billing medicare for services not delivered)

      Distribute 1/3 of current Medicare dollars directly to hospitals and long term facilities for catastrophic, indigent, long term care, and hospice care indemnifying facilities and individuals offering to provide this care.

      Cap CEO's and administrators pay of medicare receiving funds as a < 3 times multiple of a top clinical RN's pay.

      Create a standardized federal hospital accreditation process that has less than 500 simple, specific, clearly stated, concrete check- list requirements

      …And now why this will never happen:

      Too too many third party people having nothing to do with actual patient care are making their livings and fortunes on the current game of Medicare.

      The upcoming medicare events will be interesting; congress is totally polarized; there are no moderate democrats or republicans. The overriding concern of both party's (owned by the financial elite rentier class) is the maintenance of the system to honor the 12 trillion debt owed to the financial elite rentier class.

    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.