Yesterday, I wrote about the messy business of pricing medical services—a business made messier by the government’s bureaucratic payment systems. Now, the AP provides a handy real-world example of some of the headaches caused by those systems and technocratic attempts to tweak and sustain them:

Breast cancer surgeon Kathryn Wagner has posted a warning in her waiting room about a different sort of risk to patients' health: She'll stop taking new Medicare cases if Congress allows looming cuts in doctors' pay to go through

The scheduled cuts — the result of a failed system set up years ago to control costs — have raised alarms that real damage to Medicare could result if the lame-duck Congress winds up in a partisan standoff and fails to act by Dec. 1. That's when an initial 23 percent reduction would hit.

Neither Democrats nor newly empowered Republicans want the sudden cuts, but there's no consensus on how to stave them off. The debate over high deficits complicates matters, since every penny going to make doctors whole will probably have to come from cuts elsewhere. A reprieve of a few months may be the likeliest outcome. That may not reassure doctors.

...The cuts have nothing to do with President Barack Obama's health care overhaul. They're the consequence of a 1990s budget-balancing law whose requirements Congress has routinely postponed. But these cuts don't go away; they come back for a bigger bite.

Doctors have muddled through with temporary reprieves for years. This time, medical groups estimate that as many as two-thirds of doctors would stop taking new Medicare patients, throwing the health program for 46 million older and disabled people into turmoil just when the first baby boomers will become eligible.

When I wrote yesterday about how business-side innovation in the health care market is hampered by technocratic meddling, this is the type of thing I was talking about. These sorts of problems are what you get when the government sets universal pay rates and then attempts to control costs through bureaucratic payment mechanisms. The sustainable growth rate formula, which governs Medicare payment rates (at least when Congress doesn’t override it) was instituted to keep doctor payment rates from rising too quickly. But that only worked as long as the rates were going up. Pretty much as soon as the formula called for reimbursements to go down, doctors complained. And it didn’t take too long before Congress acquiesced. Since the early part of the 00’s, the scheduled cuts have been overridden repeatedly.

It’s also worth adding a bit of context to the report's statment that cuts having “nothing to do” with the health care overhaul. That’s true in the sense that new law didn’t call for the cuts, or override them. But it did prove instrumental in other ways.

First, Democrats reportedly promised to wipe out the scheduled payment cuts if the AMA supported the health care law. A payment-schedule fix was included in one early version of the bill, but it proved too expensive. So Democrats pulled it out of the bill and promised doctors that they’d get a fix eventually in exchange for standing by the new law. But that fix obviously still hasn't arrived yet, in large part because there’s no consensus on how to come up with the $200 billion or so it's projected to cost.

Second, because cost estimates for the law assumed that current law would stay in effect, the law was scored using the assumption that doctors would be hit by the full 23 percent reduction. Now, a fix may not go through on schedule here, which would cause some temporary havoc in Medicare. And it’s at least possible that doctors might eventually settle the issue by negotiating a slightly less expensive version of the fix than what’s been proposed in the past. But I don’t think that anyone believes that a permanent 23 percent cut to physician reimbursements, with no adjustments to the SGR formula, is in really what's in order. Yet that’s what the law’s score assumed.

More on the sustainable growth rate here