Just try to stop him.

Photographer: Joe Raedle/Getty Images

Doc Fix May Hit a Wall: Doctors

Megan McArdle is a Bloomberg View columnist. She wrote for the Daily Beast, Newsweek, the Atlantic and the Economist and founded the blog Asymmetrical Information. She is the author of "“The Up Side of Down: Why Failing Well Is the Key to Success.”
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For years now, I’ve had the debatable pleasure of writing about the high-stakes tedium of the “doc fix.” This is an annual ritual, like Arbor Day, except that instead of planting a tree, Congress gathers together and solemnly agrees to delay the scheduled “mandatory cuts” in Medicare payments to doctors, in order to appease the all-powerful American Medical Association. These cuts have been delayed so many times that by now they would be running well into double-digit percentages if they ever took effect. And so, of course, everyone knew they never would.

But the ritual seems to have been performed for the last time: Congress has finally crafted a permanent doc fix, which passed the Senate in a stunning display of bipartisanship, 92-8.

This is a good reminder of what we didn’t like about bipartisanship: Congress found agreement so easy because what it agreed to do was not pay the full price tag of this rather expensive fix. On the other hand, it had long been clear that the cuts would never be allowed to take effect, and the things it found to finance its annual gifts to the doctors' lobby were getting increasingly ridiculous, so it’s hard to be too upset.

And what about the spending side? What does this bill actually do?

For the best summary of exactly what is scheduled to happen, I recommend reading Bill Wynne at Health Affairs. Here’s my considerably shorter summary: automatic payment rate increases in the short term, “pay for performance” in the medium term, and a longer-term shift toward “advanced payment models,” which, as Wynne notes, currently include bundled payment models in which you pay providers a flat rate for all services a patient receives during an illness or course of treatment, rather than paying for each specific procedure. The idea is that these sorts of payment systems will hold down costs because physicians won’t be able to compensate for lower reimbursement rates by increasing the number of procedures.

Will that work? Perhaps. Here’s the important thing you need to understand about all forms of Medicare payment reform: We don’t care as much about “paying for health” or other buzzwords as we do about “paying health-care providers less.” And health-care providers care a whole lot about maintaining their incomes. We can have all sorts of arguments about whether they should be paid less, or whether they are barely getting by when you account for student loans and overhead. But that doesn’t change the basic calculus: We would like their incomes to fall by quite a bit, and they would not like that one bit.

But there’s a funny wrinkle: People want to pay less for health care, but they don’t actually want to hear that their doctors, nurses, respiratory technicians and so forth will have to let the house go because they can no longer afford the mortgage. They want some unspecified person -- probably a hospital administrator who spends their day thinking up devious schemes to make hospital gowns more humiliating and aspirin cost $10 -- to lose their job. But they don’t want to take money away from those nice people who take such good care of them when they’re sick.

And so instead of just saying “Being a family physician now pays 7 percent less,” we look for complicated ways to accomplish the same thing, such as setting up an arcane formula that will cut payments if health-care costs grow too fast (that formula, the sustainable growth rate, is what the doc fix was trying to undo). Now we’ve got another proposal that's even more complicated than the last but is supposed to be harder to game. 

Frankly, my money’s on the doctors. For one thing, trying to make something harder to game by making it more complicated is usually a losing proposition. For another, people have tried a version of bundled payments before, and while it ultimately failed for multiple reasons, a major reason was simply that doctors were too vulnerable -- get a few complicated or refractory cases, and through no fault of your own your practice starts hemorrhaging money. The solution to this is usually larger practice groups. And as a health-care economist pointed out to me in the context of the Affordable Care Act, driving markets toward consolidation usually drives prices up, not down.

More fundamentally, doctors just care more about their incomes than voters, politicians or bureaucrats do.  They have a lot of fixed expenses -- student loans, mortgages, car payments and college tuition bills -- that are predicated on having a certain level of income. If you try to make them sell the house and transfer the kids to community college, they will be very motivated to a) game the system or b) lobby Congress to raise their pay. So far, these forces have prevailed over the powers of wonkitude. And I sort of expect that they will continue to do so.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Megan McArdle at mmcardle3@bloomberg.net

To contact the editor on this story:
Brooke Sample at bsample1@bloomberg.net