Why You Should Oppose the Medicare Doctor “Fix”

The Senate is preparing to take up a bill to implement a permanent “fix” to the rates that Medicare pays for physicians. That bill is expensive, costing almost $250 billion over the next ten years. But Congress doesn’t want to pay for it. Everyone concerned about our budget situation should oppose this latest example of Washington profligacy.

The underlying mechanics of the issue are arcane, but the fundamental political and budget issues are simple:

  • Under current law, the rates that Medicare pays physicians are scheduled to decline by more than 20% at the end of the year. No one, least of all the doctors, wants this to happen. So Congress is looking for a “fix”.
  • This problem is not new. It began in 1997, when Congress decided to limit the amount spent on physician services in Medicare. The idea was that spending above the target would be offset by reductions in physician payment rates in the future. However, Congress has repeatedly flinched from implementing those reductions. Moreover, Congress often decided to avoid near-term reductions by promising to cut payment rates even more in the future. That’s why there’s an accumulated “debt” requiring a 20+% cut in rates now.
  • With encouragement from the President, many Congressional leaders want to eliminate this issue once and for all by enacting a bill that would provide payment increases to doctors, rather than dramatic cuts, at a cost of $245 billion over the next ten years (and unmeasured amounts in the years beyond).
  • And here’s the kicker: they want to spend that money without paying for it. So all $245 billion would flow straight into our deficits. For a nation running trillion-dollar deficits, that’s unconscionable.

Proponents of this profligacy will argue that (a) it’s essential to fix physician payments once and for all and (b) doing so now is no different from the doctor fixes Congress has enacted in previous years.

Both of those arguments are wrong.

In reality, the only imminent problem is the reduction in payment rates at the end of the year. To avoid that, Congress need enact only a one-year fix to payment rates, just as it has done in the past. A permanent fix might well be good policy, if it’s suitably paid for, but it is not something that must be done now.

Recent years provide excellent examples of how this should be done. Congress enacted Medicare doctor “fixes” in both 2007 and 2008. And in each case, it found a way to pay for the higher spending. Congress should do the same again today.

Congress thus has two responsible approaches to the doctor fix.

  • If Congress believes this issue is so important that it needs to be fixed once and for all, then it should do so and pay for it. Finding the will to do this may be difficult, but finding the money isn’t: the Senate Finance Committee has already identified more than $435 billion in Medicare spending over the next ten years that it deems unnecessary. Congress would need to use only a portion of that money for the Medicare doctor fix, and the remainder could be used to help pay for other priorities, such as an expansion in health insurance.
  • If Congress isn’t willing to pay for a permanent fix, then it should enact a one-year fix, and pay for it. That’s the approach it’s taken in recent years, and it’s exactly the approach taken in the Baucus health bill. This approach isn’t perfect, but it would allow the merits of a long-run doctor “fix” to be addressed next year when—at least according to recent statements from the White House—our leaders will be more concerned about our harrowing fiscal situation.

P.S. For a helpful discussion of the current politics on the doctor “fix”, see this piece by Kaiser Health News.

About Donald Marron 294 Articles

Donald Marron is an economist in the Washington, DC area. He currently speaks, writes, and consults about economic, budget, and financial issues.

From 2002 to early 2009, he served in various senior positions in the White House and Congress including: * Member of the President’s Council of Economic Advisers (CEA) * Acting Director of the Congressional Budget Office (CBO) * Executive Director of Congress’s Joint Economic Committee (JEC)

Before his government service, Donald had a varied career as a professor, consultant, and entrepreneur. In the mid-1990s, he taught economics and finance at the University of Chicago Graduate School of Business. He then spent about a year-and-a-half managing large antitrust cases (e.g., Pepsi vs. Coke) at Charles River Associates in Washington, DC. After that, he took the plunge into the world of new ventures, serving as Chief Financial Officer of a health care software start-up in Austin, TX. After that fascinating experience, he started his career in public service.

Donald received his Ph.D. in Economics from the Massachusetts Institute of Technology and his B.A. in Mathematics a couple miles down the road at Harvard.

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