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Senior Citizen Opinions & Analysis
The Medicare 'Doc Fix': How to Make Political
Lemonade
By
Austin Frakt, Assistant Professor of Health Policy and Management
Boston University’s School of Public Health
 June 29, 2010 - The mechanism that governs the
growth rate of Medicare spending on physician services isn’t working.
The Sustainable Growth Rate put in place in 1997 is supposed to keep
total Medicare physician costs from growing faster than the overall
economy. When costs do grow too quickly–and they always do–the law
demands that prices be cut commensurately.
But it doesn’t work. The SGR target is too low.
Medical inflation is perennially above the growth rate of the economy.
So Congress always overrides those mandated cuts, and the gap between
spending dictated by the SGR and actual spending grows. Most recently it
stood at
21 percent.
This is no way to run a health care system. The SGR
may make 10-year budget projections look good, but that’s only because
it’s based on an unrealistic assumption that the mandated low growth
rate can be sustained. By now we know that it can’t.
The solution is not to let the 21 percent cut go
into effect. That’s too deep a cut and would devastate physician
practices and severely restrict beneficiary access to care. Nor is the
solution to keep patching the problem with interim over-rides. That’s
what Congress did
last week. It’s a stop-gap and doesn’t address deeper problems.
Instead, a systemic “doc fix” is required.
The first step toward a solution is a fuller
understanding of the problem. Costs are the product of payments and
volume. Growth in Medicare physician payments are constrained by the
relatively small updates Congress allows in its over-rides of SGR
dictated cuts. Last week Congress voted to replace the 21 percent
payment cut with a
2.2 percent increase, for example.
With such small increases, payment levels are
below those in effect in early in the decade, adjusted for medical
inflation. (This is, by the way, a cost-control virtue of the SGR.
There’s nothing like the threat of a double-digit percentage payment cut
to make a one or two percent increase look large.) But the volume of
health care services remains unconstrained. As it grows, so do costs.
Controlling volume is a challenge, one Congress has
never met. It’s too easily defeated by charges of government rationing.
Of course, markets ration, too, based on prices. In a market, higher
prices lead to lower volume. But Medicare is not a market. Congress –
not beneficiaries -- pays most of the bill. Congress can’t dictate
prices and turn a blind eye toward volume and expect costs to fall.
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The SGR problem is now so large it offers an
opportunity for political leverage on the issue of volume. The American
Medical Association and other physician groups may want it fixed badly
enough that they’ll accept some payment system changes in return. And,
in the current anti-deficit climate the cost of a full fix–estimated at
$245 billion over 10 years–must be partially offset with some kind of
savings. As an illustration of the political power of a full SGR fix,
the AMA supported health reform on the promise of one.
What should Congress seek in exchange for scrapping
the SGR methodology? At the top of my list would be to base some of
physician payment on quality improvement. Aligning payment incentives
with quality and not quantity will strike at the heart of the cost
growth problem. Also high on the list should be reducing payments to
specialists and increasing those for primary care physicians.
Specialists are responsible for
hundreds of billions of dollars of unnecessary care annually and
primary care doctors are predicted to be in
short supply as more Americans obtain coverage under the new health
reform law. Finally, payments should be adjusted to account for
geographic variation in costs that are reasonable and related to
appropriate care.
The SGR system was flawed from the start and should
have been fixed years ago. But now we have an opportunity to make
necessary systemic changes. This lemon really can, and must, be turned
into lemonade.
Acknowledgment: Aaron Carroll (physician, Indiana
University professor, and
blogger ) provided valuable feedback on an earlier draft.
Austin Frakt is a health economist and an Assistant Professor of
Health Policy and Management at Boston University’s School of Public
Health. He blogs at
The Incidental Economist.
View all previous columns »
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 This
information was reprinted from
kaiserhealthnews.org with permission from the Henry J.
Kaiser Family Foundation. You can view the entire Kaiser
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