Fixing the way Medicare doctors are paid

The headline to this piece has been corrected, as explained below.

Republicans and Democrats can’t seem to agree on anything related to the 2010 healthcare law, but they may come together soon on a crucial fix to the nation’s largest federal healthcare program, Medicare. At issue is the “sustainable growth rate,” a mechanism Congress enacted in 1997 to limit Medicare costs. It hasn’t; instead, it has simply threatened physicians with ever-larger and more unreasonable cuts in fees, which Congress has routinely waived. Now, the top Republicans and Democrats on three congressional committees have come up with a replacement formula; the only missing piece is a way to pay for it. Although that’s a significant issue, it shouldn’t stop Congress from adopting the proposal.

Launched in 1966 as an insurance program for the elderly, Medicare now covers more than 52 million Americans who are age 65 and older or disabled. Current and future participants provide Medicare with about half of its nearly $600-billion annual budget through payroll taxes and premiums, with the rest of the money coming mainly from federal and state subsidies. However, federal taxpayers pay more than 70% of the cost of Medicare Part B, the optional coverage for doctors’ bills. That cost has risen dramatically over the years, climbing from $101 per beneficiary in 1970 to $1,823 in 1995 and more than $5,100 today.

The 1997 formula was designed to slow the growth in Part B costs by counteracting the incentive Medicare gives physicians to perform the most and costliest treatments possible. The law essentially sets a target for Part B spending to keep it in line with economic growth. If the cost per beneficiary grows faster than the economy, the formula calls for Medicare to cut the fees paid to physicians deeply enough to make up the difference. But it’s a blunt instrument, and Congress has refused to use it for more than a decade. Instead, it has spent more than $150 billion to keep the fees stable or even increase them. If Congress doesn’t act again, the formula would require physicians’ fees to be cut by almost a quarter at the end of March, which would drive doctors out of the Medicare program in droves.

The 1997 formula identified the right problem in Medicare but the wrong solution. The proposed fix, HR 4015, would replace the formula with financial rewards and penalties for doctors based on the quality and efficiency of their work. The idea is to prepare and motivate doctors to abandon the conventional Medicare payment system (called “fee for service”) in favor of alternatives that encourage doctors to deliver better results at lower cost.

That’s easier said than done. The healthcare industry can’t yet do some of the things the new approach calls for, such as measuring quality for all types of care and identifying the most efficient way to treat each ailment. And while the industry has been experimenting with alternatives to fee for service, some of the most promising ideas haven’t proved to save money.

Nevertheless, the measure is the right step forward, aligning Medicare with efforts by employers and private insurers to control healthcare costs without reducing quality. And the bipartisan support for it means that lawmakers will be more likely to adjust the law as needed in the future, rather than just fighting over whether to repeal it, as they’ve done with the 2010 Affordable Care Act. Better known as Obamacare, that law also tried to promote alternatives to Medicare’s fee-for-service system. But it didn’t repeal the 1997 formula; hence the continued search for a replacement.

The estimated cost of the measure is almost $140 billion over the coming decade, but that’s a misleading artifact of the Congressional Budget Office’s methodology. The CBO compared HR 4015, which provides for small or no annual increases in physicians’ fees, to the cost of enforcing the current formula, which Congress simply will not do. Regardless, there are several potential ways to pay for the measure by making Medicare more efficient, including a Senate proposal to manage the care of the sickest beneficiaries better, and a plan to unify Medicare’s coverage for hospital stays and doctor visits under a single deductible. Whatever lawmakers do, they shouldn’t pay for the improved system by making it harder for seniors to obtain care. But they need to get rid of the current formula, and HR 4015 offers the best chance yet to do it.

[For the Record, March 3, 10:30 a.m.: The original headline on this editorial said “Medicaid,” not “Medicare.” The legislation at issue deals only with Medicare’s payments to physicians.]