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Taking on Medicare’s Flawed Formula to Pay Doctors

Democrats on the Senate Finance Committee have been patting themselves on the back for passing out a health reform proposal that both saves money over the next decade and costs hundreds of billions of dollars less than similar legislation moving through the House. What often goes unmentioned is the inconvenient fact that the Finance bill sidesteps one of the most agonizing and expensive problems facing the entire health delivery system: how to fix the flawed formula that dictates physician payments under Medicare.

While the House legislation scraps that formula in favor of a long-term fix, the Finance bill provides just a one-year patch. The difference in cost between those approaches is nearly $220 billion.

Here’s the problem. Created in 1997, the so-called Sustainable Growth Rate (SGR) formula was designed to prevent Medicare doctor payments from skyrocketing by indexing reimbursements to the growth of the economy on the whole. Trouble is, health care inflation has grown by degrees faster than GDP in recent years. Indeed, the SGR has called for cuts in doctors’ Medicare pay every year beginning in 2002. (Starting next January, the cut would be a whopping 21 percent.) That’s a perennial thorn in the side of Congress, which, having no stomach for alienating the powerful physician lobby, almost always steps in with a temporary fix.

That’s just what the Finance bill would do, trading the 21 percent cut for a 0.5 percent increase in 2010. Cost: $10.9 billion. The House legislation, however, goes many strides further, eliminating the SGR altogether and replacing it with a new formula designed to provide permanent pay increases allowing physicians to treat Medicare patients without taking a loss in the process. Cost: $228.5 billion.

Not that Senate lawmakers aren’t aware that their approach is a punt. Indeed, party leaders met yesterday to discuss a separate Senate bill, introduced Tuesday night by Sen. Debbie Stabenow (D-Mich.), that would scrap the SGR in favor of a more permanent formula for updating physician payments.

But get this: Democrats want to pass that bill separately from the broader health reform legislation so they won’t have to pay for it. The Hill’s Jeffrey Young reported yesterday that the Stabenow bill “could cost more than $200 billion over 10 years – without cuts or revenue to offset the spending.”

Remember when President Obama said that he won’t sign a health reform bill that raises deficit spending by a single dime? If the SGR fix goes on a separate track then the White House could keep its promise, the physicians would get what they want, and Congress wouldn’t have to return to the issue again next year.

That’s music to the ears of the American Medical Association. For taxpayers, though, it’s a different story altogether.

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