The Doc Fix: A Lesson in How Government Doesn't Work

Here's what happens when the U.S. Congress decides to indulge its technocratic tendencies on a major aspect of the American health care system, physicians' Medicare payments, which since 1997 have been governed by the sustainable growth rate (SGR). Via The Washington Post: 

It was adopted by Congress in 1997 almost as an afterthought — a new formula to keep Medicare spending on doctors from growing faster than the economy as a whole.

But like a snowball that swells in size as it rolls down a mountain, the rate-setting formula has transformed into a budget-busting juggernaut that will hit doctors with a 27.4 percent pay cut for their Medicare patients in January unless legislators step in.

The cost of congressional intervention has ballooned just as formidably: Postponing the cuts — the solution Congress has turned to every year since 2003 — would cost $21?billion for a one-year delay and $38.6?billion for two years. Fully repealing the formula would add nearly $300?billion to the deficit, according to the Congressional Budget Office.

The formula has given us one of Washington's most enduring budget rituals, the "doc fix," in which Congress, despite being well aware that physicians are set for large cuts to their Medicare reimbursement rates, and despite having no intention of letting those cuts go through, waits until the very, very, very last minute, talks about the need to get rid of the SGR…and then passes yet another temporary override. 

Despite widespread agreement between Republicans, Democrats, and health providers that the system needs a permanent fix, Congress sticks to temporary patches because the total cost of a permanent fix would, at this point, run somewhere in the neighborhood of $300-400 billion dollars—money that no one in Congress wants to commit. Even when Democrats in Congress did manage to raise a trillion bucks to put toward health care (sort of), they spent it on expanding coverage through ObamaCare rather than on unbreaking the obviously cracked system we already had. 

Indeed, the delays just break the system further; every temporary override makes a permanent fix even more expensive. By 2014, it won't cost $300-400 billion. It'll cost closer to $600 billion. So each time Team Red and Team Blue team up to pass a temporary patch in order to avoid the pain of paying for a permanent fix, they end up making it even harder to pass a permanently paid-for solution down the road. It's a bipartisan feedback loop of fiscal stupidity. 

The doc fix is an object lesson in the ways that Washington does not work: Congress passes poorly designed plans—a complex payment formula that no one expected would ever cause physician payments to drop—and then when it dawns on legislators that their latest technocratic scheme isn't working as expected, they take half-measures to "fix" the problem that actually make it worse. 

This isn't an isolated case, either; it's not like Medicare was A-OK until Congress came along and screwed it up with the unsustainable growth rate. As I document in "Medicare Whac-a-Mole," my feature in Reason's latest print edition, the history of Medicare payment fixes, each intended to control exploding system costs by somehow fixing its payment system, is a history of technocratic folly, in which Congress and assorted health bureaucrats—not all of whom even knew much about the health care system they were tasked with managing—passed payment reform after payment reform, only to watch spending continue to grow faster than expected. This is why I'm even skeptical of the permanent fix proposals put forth by Medicare's resident bureauwonks, which would tweak the payment system to cut specialist payments and freeze primary care pay. Maybe the wonks and bureaucrats will get it right this time! Or, you know, maybe not.