A Doc Fix That’s Not a Fix
Congress wants to replace a misguided Medicare policy with one that reinforces the system’s flaws.


James C. Capretta

A rare (during the Obama years) display of bipartisanship has broken out in health-care policy in recent weeks. The chairman and ranking members of the three leading health-care committees in Congress — Ways and Means and Energy and Commerce in the House, and Finance in the Senate — have agreed to a permanent replacement for the dysfunctional Medicare physician-payment system. This supposed good news would make it unnecessary for Congress to act every year, as it has since 2002, to head off the across-the-board cuts in physician fees that today’s irrational system (called the Sustainable Growth Rate, or SGR) compels. In other words, there would be no need for annual “doc fix” legislation if this bipartisan deal were to become law.

There’s certainly something to be said for that. The cuts in physician fees scheduled under current law, including the 25 percent reduction planned for January 2015, aren’t going to happen anyway — Congress isn’t going to allow seniors to experience the serious disruption in access to physician services that these cuts would set in motion. So wouldn’t it be better to face reality and replace the SGR system with something better, more stable, and permanent?

A fix has certainly been long in the making. It is sometimes said, erroneously, that today’s Medicare physician-fee schedule has its origins in the Balanced Budget Act of 1997. That’s not true. It started with legislation passed by a Democratic Congress in 1989 and signed into law by President George H. W. Bush.

The central idea of the original 1989 legislation was to reward physicians for the time, effort, training, and skill they put into the services they rendered to patients. The concern was that the old system, based on a cost-reimbursement structure, was rewarding high-volume specialties at the expense of primary and preventative care (sound familiar?). So Congress authorized the creation of the resource-based relative-value scale (RBRVS) to correct the imbalance. RBRVS was supposed to pay higher fees for services that required more-intensive and direct physician involvement (like seeing patients) and less for the high-volume procedures and tests that made money but required little real skill.

There was also a concern that Medicare couldn’t afford double-digit spending increases that were occurring every year, and so aggregate physician payments were placed under a Volume Performance Standard (VPS) that would impose across-the-board cuts on areas of physician reimbursement that were growing faster than allowable under a formula. The VPS was the precursor to today’s much despised SGR.

At the time this system was enacted in 1989, it was said that it would finally reverse the trend toward specialization in medicine and begin rewarding physicians for helping patients stay well and avoid costly complications. But instead of reversing the previous trends, the 1989 law exacerbated them. The imbalance in reimbursement levels between primary care and specialists has grown far worse in the last two decades because of changes in technology, but also because the only way doctors can increase revenue under the budget-control mechanisms has been through volume increases. By all accounts, therefore, this government-led payment-system experiment has been a complete failure and resulted in precisely the opposite of what was intended.

Naturally, then, the emerging bipartisan solution, embodied in the bipartisan agreement put together by the three major committees, is to replace it with another government-led payment system.