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Health Care

Congress Announced a Doc Fix. What's a Doc Fix Again?

Congress announced something called a “doc fix.” What’s wrong with doctors?
“Doc fix” is shorthand for an annual ritual in Washington that staves off cuts to the rate physicians get paid by Medicare, the federal health insurance program for Americans over 65. Congress passed a budget law in 1997 to slow Medicare spending, partly by linking targets for doctor pay to economic growth through a formula called the “sustainable growth rate” (pdf). If Medicare spends more than the target one year, it’s supposed to lower its reimbursements for physician services the next year, to keep overall spending in check.

The problem is Medicare spending has exceeded the target each year for more than a decade, setting doctors up for big pay cuts that Congress patches with short-term fixes. Because cuts have been put off so many times, the drop by now would be staggering if it ever went through. Reimbursements would have dropped 24 percent overnight on Jan. 1 without a three-month reprieve passed in December.

Why does Medicare spend more than the target?
The formula is broken. It worked OK in the late 1990s when the economy was soaring, but doctors revolted when they faced the first pay cut during the slowdown in the early 2000s. Even if Congress wanted to be tough on doctors and had let the rate cuts stand, it’s not clear that would have kept overall spending down. The “fee-for-service” system already gives doctors incentives to do more tests than they might otherwise (think extra lab work or MRIs). So cutting physicians’ fees for each procedure would give them even more reason to increase volume—or turn away Medicare patients entirely and take only those with commercial insurance, which pays more.

So is Congress just delaying the cuts another year?
The deal lawmakers announced Thursday is supposed to be a permanent fix. It would repeal the busted formula and replace it with a system that gives doctors a 0.5 percent raise each year for the next five years. That’s supposed to be a bridge to a new system in which Medicare’s payments are more closely tied to the quality of the care doctors provide, not just how many tests and treatments they can bill for.

Hooray: Congress did something. I’ll get the champagne.
Not so fast. The agreement, in the works for more than a year, has the support of important committees in both the House and Senate. But a big problem still hasn’t been solved.

Does it involve money?
Of course. Lawmakers didn’t say how they’d pay for the permanent doc fix, and it’s an expensive repair: Congress would need to find somewhere between $120 billion and $150 billion. If they try to get that money by cutting Medicare payments to other medical providers, such as hospitals, there’s sure to be a fight. Asking seniors to pay more isn’t likely to be a popular option, either. The agreement is progress, for sure, but it’s far from a done deal.

Tozzi is a reporter for Bloomberg Businessweek in New York.

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