The Doc Fix Dilemma


I already linked to the op-ed by Holtz-Eakin, Capretta, and Antos explaining why the new health care law won't reduce the deficit. But the authors actually left out one of the largest reasons why you shouldn't buy the deficit-reduction argument:  the so-called "doc fix"—an update to Medicare's physician reimbursements that could cost as much as $276 billion.

Here's the problem: In 1997, Congress decided it was high time to get Medicare spending under control. Their solution was to tie physician reimbursement rates to an inflation-based formula called the sustainable growth rate. The formula worked fine as long as it called for increased payments. But that didn't last long. In 2002, the formula, Congress allowed payments to drop 5 percent. The reaction from physicians was strong enough that they didn't let it happen again. Since 2003, Congress has voted repeatedly to temporarily extend or increase existing reimbursement rates through deficit spending. The temporary patches have substituted for permanent fixes because no one knows how to pay for a long-term fix. But by relying on a series of temporary patches, Congress has made it even more expensive to enact a long-term fix.

The result, as last summer's Health Affairs briefing on the issue dryly notes, was that "the expectation that this payment system would control spending was not realized." Given Medicare's history, that's not surprising.

Since then, the formula has called for greater and greater rate reductions. Congress keeps ignoring them. At this point, doctors are looking at a roughly 25 percent reimbursement cut. Members of both parties are keen to avoid that cut. But with the price of a permanent "fix" coming in at an estimated $276 billion (more if Congress waits a few years), no one wants to pay for it either.

Last year's Patient Protection and Affordable Care Act expanded Medicaid enrollment by a projected 16 million individuals. It provided relatively hefty health insurance subsidies to another 16 million or so. It called for the creation of an Independent Payment Advisory Board to hold keep Medicare costs in check. But in the end, the law—and the budgetary scoring for it—ignored the looming cost of the doc fix.

Democrats defend this by saying that the doc fix and ObamaCare are distinct and shouldn't be scored together.

One way to frame the issue goes like this: If you're living in a house with a leaky roof, and you decide to build a new house, should you include the cost of fixing the old roof in the new house?

Time for a doc fix!

The analogy is flawed. The PPACA didn't build an entirely new, separate system. It built out and expanded on the old one—a mix of employer-sponsored coverage, Medicaid, and Medicare. A better way to frame the issue would be to ask whether you would include the cost of fixing your leaky roof if you wanted to build a new floor on top of it. Most people, I think, would answer yes.

But even if you buy the old-house/new-house analogy, the answer is still yes, potentially—especially if the cost of the new house will make it even more difficult to fix an old problem. And as James Capretta explains nicely, the "offsets" that might have gone to paying for the doc fix instead got used up funding the PPACA's coverage expansion:

When President Obama assumed office, he wanted his health bill and a permanent "doc fix" too, but he didn't have enough flimsy offsets to grease the way for them both. So he came up with a new "solution": use the offsets to pave the way for Obamacare's spending, and exempt the "doc fix" from the need for offsets at all. This would create the perception of "deficit reduction" from Obamacare even as an unfinanced "doc fix" ran up the deficit by an even larger amount.

The link is now even more explicit: At the end of last year, after struggling to find funding for yet another one-year extension of doctors' payment rates, Congress eventually decided to pull money out of the PPACA's insurance subsidies.

Democrats didn't always think the doc fix was unrelated to the law either: An early draft of the legislation included the expensive patch, but it was taken out to bring down the price tag after early scores came in well over a trillion dollars. Pass it later, separately, and it's not part of the scoring math—despite the fact that Democrats initially intended it to be part of the reform package. You can also make the case that, well, it has to be done so that doctors won't turn away Medicare patients because reimbursement rates are too low. 

Even after the doc fix was taken out the legislation, it didn't stop Harry Reid from using it as a bargaining chip to ensure that doctors—in the form of the American Medical Association—would support Democrats and their health care overhaul.

Perhaps it's beside the point. Regardless of whether you factor in the SGR fix, the PPACA isn't likely to reduce the deficit under any realistic set of assumptions. But it's all part of the same problem: We can't afford the health system we have. And last year's health care overhaul almost certainly made the problem worse.

NEXT: Somali "Government" to Regulate Only Thing in Somalia That Actually Works: Cell Phones

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  1. Great Scott that’s some dry, esoteric stuff. The mental equivalent of eating forty packs of saltines without drinking.

  2. Missing a byline, Mr. Suderman.

  3. The Fix is In

    I’m 99.998% sure I post that every time someone blogs about the doc fix.

  4. So, the Operation guy was having his Adam’s Apple removed.
    I’m guessing this was elective surgery…

  5. We already know that “buy now, pay later” is part of the mentality of Congress. The question is whether this is proof of Congress’s naivety, or proof of Congress’s gimmicky salesman tricks. The doc fix seems to be proof of the latter.

  6. The CBO lied; the economy died.

  7. “Members of both parties are keen to avoid that cut”

    Why is this? Are doctors really significantly more influential than deficit hawks?

    1. It will be framed in the media as denying care to old people. Allusions to cat food and freezing to death alone in the dark to be eaten by cats will be made.

      Old people are the most power single interest going.


      1. Well then – could this be reframed by pointing out that doc-fixed Medicare, by putting a floor on doctor fees, screws absolutely everyone else?

    2. Maybe or maybe not. But the geezers are more powerful than either, and if they can’t find a doc who’ll take Medicare there will be blood (or at least loaded Depends) in the streets.

    3. Their Medicare patients are.

      And don’t underestimate the grassroots power of the docs. They are pretty damn influential in their own right and pretty well organized, but they can mobilize their patients as well.

      At the state level, at least, its pretty much a truism that the docs can completely block one (1) bill per session, regardless. So, yeah, they are more influential than the (mythical) deficit hawk

  8. Kill the Doc Grift!!!!!!!

    I have been saying it here for years!!!!!!

    But the GOP will just suck dick instead……

    Sad,,, sad.

    1. shrike and I share the ability to be right occasionally.

    2. Not so fast, Mr. Clock.

      How is it the Repubs’ fault that a Dem Congress and Dem President extended the Doc Fix at least twice, just last year alone?

      1. The Doc Fix and the Bush Medidare Welfare Act went on for years……

        Jeez – I am not mad at the GOP now.. All hope has been lost – thanks Bush the Deranged Loser Idiot.

        1. TIMECUBE!!!!!!111

  9. The doctors (AMA? Other professional associations?) seem to have done a damned effective job of squelching any crazy talk about expanding the supply of “health care providers”.

    1. We have? Noticed the explosion of midlevel providers (Nurse Practitioners, Physician Assistants, CRNAs) in the last twenty years? There are also more training programs now than there were. Keep in mind medical residencies are funded by Medicare, so if you expand that training you will need to pay out more. I’m not saying there isn’t pressure to keep the supply of docs from increasing, but it’s not as bad as you’d have us believe.

  10. What in the hell is wrong with America? Why do we let the bulk of the media lie their asses off about the Democrat’s schemes? Imagine the screams if the Republicans tried to pass a health care bill with no doc-fix.

  11. Congress eventually decided to pull money out of the PPACA’s insurance subsidies.

    That is incredibly good news, really.

  12. The fact is, doctors are over-paid, both in comparison to the pay of similar professionals and their international peers. Except for bankers, who are also overpaid, most other professional career paths have lost a lot of their financial luster in the last few years. The only thing propping up pay for doctors is their precious little cartel that keeps the competition at bay.

    1. Hey Chad Moron, Drs are overpaid more than other professionals?? Tell that to the most highly intelligent, most highly skilled surgeon, standing over you in an attempt to save your ungrateful life! Physicians derserve every cent they make saving lives every minute of their workday!

  13. I don’t see why everyone’s getting riled up about this temporary problem. As soon as the insurance companies are eliminated and we move to a true nationalized health care system the doctors will be put on minimum wage.

    Except for the hospitals congresspeople go to, of course.

    1. Really LarryA? When medicine is socialized you’d be lucky to find a doc willing to work for minimum wage. WTH is in it for him. The best doctors will have left the profession which will be taken over by loser would-be med school dropouts and physician’s assistants. Good luck with your health crisis in that scenario. That is if you don’t die first after waiting for months to be treated Einstein!

      1. ^5 Cher. So many Dem posters to this thread clearly have not the mental capacity to comprehend the full scope of Obamacare. And their Messiah, Obama, speaks at Podium as though Obamacare is already a proven success when it is more than 2 years away from being a functioning Act. Every Physician I have spoken to do not find Obamacare to be an improvement in HC at all. Physicians predict the obvious, that fewer students will choose the medical field as a career & existing doctors will be forced to close their practices due to cuts in reimbursements for their services. A Testimony to the damages caused by Obamacare in 2011 are the 3 hospitals in Scranton, PA that are closing their doors because they will not be able to afford to operate any longer.

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