The Real Problem With the Medicare 'Doc Fix'

Tuesday, 01 Apr 2014 02:53 PM

 

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By Peter Orszag

As policy-making disgraces go, last week's House of Representatives vote for a temporary "doc fix" to avoid a cut in Medicare payments to doctors is hard to beat: It's financed in part through accounting gimmicks, and the vote was so rushed that most members of Congress didn't even realize it had been held. A permanent fix is offered as an alternative, and it would indeed be better, but this option, too, could be much stronger.

Even middling structural reforms are apparently out of reach in this age of diminished expectations. And yet, as Medicare costs overall continue to decelerate, lawmakers should seize the opportunity to reform healthcare financing so that payments are based on value rather than volume. Doctors and hospitals need some clarity about how and when this evolution will proceed; the House legislation, which will be voted upon by the Senate this week, provides none.

The doc fix is a mechanism that Congress has used for about a decade to avoid following the "sustainable growth rate" formula that lawmakers came up with in the late 1990s to constrain annual increases in Medicare payments to doctors. This year, doctors are scheduled to face a 24 percent reduction in Medicare rates, and the House has voted to spend $16 billion to keep that from happening. (The legislation also includes an unnecessary delay in a shift to a new, and admittedly more complicated, billing code system. But that is a topic for another column.)

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Most commentary in Washington about the doc fix misses the point. It is typically held up as proof that Congress cannot stick to its promises. Yet the core problem is that these temporary fixes fail to change the mechanism for paying doctors from one based on volume of services to one based on value of care.

The usual complaints about the doc fixes are not only misplaced, but also mostly misleading, because the temporary patches have generally not been fiscally irresponsible, as a recent analysis from the Committee for a Responsible Federal Budget shows. For one thing, the patches have typically held payments about flat, rather than increasing them in line with all healthcare costs. Over the past decade, the temporary fixes have resulted in a 0.7 percent average annual increase in the physician payment rate, which is much lower than healthcare cost increases in general. Plus, more than 90 percent of the time that Congress has passed doc fixes, it has found a way to pay for them. And some of the ways it has come up with the money have even been useful. For example, Congress has offset the doc fix in part by expanding bundled payments, which set a single payment for all the care associated with a particular illness or injury.

The opponents of this year's doc fix are right that a permanent solution would be preferable to staying on the treadmill of temporary fixes. However, the permanent alternative favored by the American Medical Association and others is weaker than it should be. It shows how low our expectations have become.

The AMA-endorsed legislation, backed by members of both parties in Congress, sets the right goal: It moves toward paying doctors for the quality of treatment they provide rather than how much they do. Its sponsors should be commended for recognizing the core problem and working to address it. But as the Center for American Progress has warned, the legislation includes some provisions that might actually weaken the payment system's ability to encourage higher-quality healthcare.

Under current law, by 2018, 8 percent of Medicare payments are supposed to be contingent on whether the doctors use electronic health records effectively, whether they report quality measures and how well they perform. The permanent legislation would replace this approach with one "merit-based incentive program." Yes, that would be simpler, but the legislation would also cut the share of payments at risk in 2018. Furthermore, doctors would be able to choose which quality measures they want to be evaluated against. Anyone want to guess how many doctors would pick the measures they perform best on?

One reason we have been seeing an encouraging slowdown in Medicare cost increases is that healthcare providers have been anticipating a shift in the system away from fee-for-service payments. The only responsible course for policymakers now is to clear the path for that shift. The temporary doc fix that the House has passed fails to do this. The Senate should insist on a solution that is not only permanent, but also includes stronger quality measures than what has been offered to date.

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Peter Orszag is vice chairman of corporate and investment banking and chairman of the financial strategy and solutions group at Citigroup Inc. and a former director of the Office of Management and Budget in the Obama administration.

© Copyright 2014 Bloomberg News. All rights reserved.

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