Bipartisan Fix Advancing for Medicare Doctors' Pay

It's that time of year again: doctors caring for Medicare patients once more face a steep pay cut. But this time Congress is pursuing a permanent fix to the annual drama that has undermined the medical profession's confidence in the nation's premier health program.

A fundamental change in the budget equation has handed lawmakers a rare opportunity to repeal Medicare's broken physician payment policy, while also freeing them from having to waive billions of dollars in impending cuts every year. Slowing health care inflation has slashed the cost of repealing the old formula, bringing it down to $116.5 billion over 10 years, according to the latest estimates.

Democrats and Republicans on both sides of the Capitol plan to push ahead this week with a framework for a new payment policy. Although a final fix will have to wait for next year, the new approach would set up financial carrots and sticks for doctors to provide quality, cost-effective care to more than 50 million elderly and disabled Medicare recipients. Up to 10 percent of an individual physician's pay could eventually be linked to the doctor's performance on quality indicators.

The plan would repeal the centerpiece of the old payment formula, a 1990s budget provision that mandates automatic cuts to doctors to limit Medicare spending. It became a symbol of government dysfunction after Congress got into the habit of regularly issuing temporary reprieves. Otherwise doctors might stop accepting Medicare patients.

But restoring payments to doctors each year didn't solve the problem, because the law remained on the books. A reduction of nearly 24 percent next year is called for unless Congress acts.

Experts say the old payment formula needs to go not just because it's ineffective, but also because it encourages a costly, piecemeal approach to health care. Doctors bill for as many services as they can to maximize Medicare reimbursement, but there's no consistent focus on keeping patients as healthy as possible.

Payments to doctors account for 10 percent of Medicare spending, about $60 billion a year. Other outpatient providers are also paid under the same system.

Not many years ago, the 10-year cost of repealing the old formula was headed into the $300-billion range. Now that number has declined to a point where a comprehensive fix looks cheaper than continuing to pony up billions for short-term waivers.

"These annual patches are adding up to a lot more than if we do it in one fell swoop," said David Certner, legislative policy director for AARP. "That obviously gives more momentum to make these changes."

The seniors lobby favors getting rid of the old payment formula, since the constant threat of automatic cuts creates instability for Medicare. But AARP, the American Medical Association, and other major interest groups are reserving judgment until they see the final details.

On Thursday the Senate Finance Committee is expected to vote on a broad bipartisan framework to begin revamping doctors' pay. "Enough with the quick fixes," says chairman Max Baucus, D-Mont.

The House Ways and Means Committee is on a parallel course. "Physicians and seniors alike, for over a decade, have been hamstrung by short-term patches instead of the certainty of a permanent solution," said chairman Dave Camp, R-Mich.

But the deal is far from done.

Since Congress doesn't have enough time to resolve something this complicated before the holidays, lawmakers will need to approve a temporary patch to get them through the first few months of 2014. Then comes the hard part.

Doctors want a raise, not just a freeze of current rates. That would cost money.

But the biggest cost barrier has to do with the broken payment formula itself.

In one of those bewildering twists of federal budgeting, projected "savings" from the formula's often-waived cuts are counted as if they were real, and have to be offset with actual spending reductions or tax increases.

Finding mutually acceptable offsets is a huge challenge for Camp and Baucus. Details are unlikely to emerge this week.

"Fixing the fee schedule comes at a cost and the question is how Congress will cover these costs," said Tricia Neuman, an expert on Medicare with the nonpartisan Kaiser Family Foundation.

Some have suggested tapping projected savings from winding down the war in Afghanistan. Fiscal conservatives scoff that that's an accounting gimmick.

Another option would be to assemble financing from about $400 billion in Medicare cuts already proposed by President Barack Obama. Congressional Republicans have made many of the same proposals themselves.

However, that list includes a gradual increase in Medicare premiums for upper-income beneficiaries and many in the middle class, a nonstarter for AARP. Even Obama says he won't go for Medicare cuts without higher taxes on the wealthy, unacceptable to Republicans.

What's different this year, said Neuman, is that there seems to be agreement on a general strategy for replacing the old Medicare payment formula. "What's similar to previous years is the struggle to identify ways to pay for it," she added.