FAQ: The ‘doc-fix’

at 09:17 AM ET, 11/22/2011

While the supercommittee has thrown in the towel, another big battle still looms for Congress before the end of the year: the “doc-fix.” For nearly a decade, the formula used to fund Medicare has not appropriated enough money to cover the program’s costs. Congress has repeatedly intervened, passing doc-fixes that (temporarily) stabilize Medicare’s funding. Here’s what you need to know about how the problem started, how Congress has addressed it and what to expect in coming weeks.

What’s the problem? Ever since Medicare was created in 1965, the federal government has struggled to decide how much to pay Medicare doctors for their services. Democrats and Republicans alike have drawn up complex formulas with wonky names to set reimbursement levels. The Medicare Economic Index was the formula of choice in the 1970s. That was ousted in the 1990s by the Volume Performance Standard.

In 1997, Congress created a new formula called the Sustainable Growth Rate, or SGR. Using Medicare spending in the 1990s as a baseline, the formula factored in overall economic growth to create the annual Medicare budget. The goal was to control Medicare spending by tethering it to the rest of the economy’s growth. And, for a few years, this worked fine; the equation pretty accurately predicted how much Medicare would cost. But, as health care costs outpaced the economy, it has stopped working, leaving the entitlement with a multi-billion-dollar shortfall.

What’s the doc-fix? When Medicare funding falls short, Congress is left with two options: Cut doctors’ pay or appropriate additional funds. Legislators don’t really like the first one; they worry providers would flee the program if their salaries were slashed. So since 2003, under both Democratic and Republican control, Congress has passed short-term doc-fixes to keep provider payments stable (or, in some cases, give doctors a slight raise). These pay-patches have ranged from a few years to just 30 days. In 2010 alone, Congress has passed five separate doc-fixes, none longer than six months. Last December, Congress passed a one-year doc-fix that cost $19 billion and lasts til the end of 2011.

If the SGR formula is broken, why don’t we fix it? Professional societies, most notably the American Medical Association, have long lobbied to overhaul the funding formula and replace it with one that could more accurately predict what the program costs. The Obama administration endorsed permanent repeal of the SGR formula and the Government Accountability Office has run through what possible replacements could look like.

The obstacle is money. The current funding formula assumes Medicare will cost significantly less than it does (hence the constant shortfalls). To bring it into balance would cost about $300 billion more, according to Congressional Budget Office estimates. In a sense, that’s money we’re already spending, as we keep filling the funding shortfalls. But finding $300 billion at once is a tough lift, and neither side wants to simply add it to the deficit. And with each year that goes by, the number keeps getting bigger, as the gap between what SGR formula appropriates and what Medicare actually costs gets bigger and bigger. Here’s how the American Osteopathic Association charts it, using CBO data:

The longer Congress puts off fixing the SGR formula, the bigger a challenge it becomes. But it’s already a pretty big lift, which explains why recent attempts to repeal the funding equation via health reform and even the supercommittee, have ultimately failed.

What happens next? The most recent doc-fix only appropriated enough funding to keep doctor salaries stable through Dec. 31. If Congress does not pass a pay patch by then, the American Medical Association estimates Medicare providers would see a 27 percent pay cut. While both parties generally support keeping doctors’ pay constant, there’s likely to be a debate over how to finance the legislation.

Has Congress ever failed to pass a doc-fix? What happens then? Last summer, a doc-fix got held up as part of a larger package of stimulus spending and unemployment benefits, allowing a 21 percent cut in doctor reimbursements to go into effect. Then, the Center for Medicare and Medicaid Services told providers to hold off on submitting claims for two weeks in hopes that, by then, Congress would come up with a solution. Congress eventually did, but not without many provider complaints on the disruption to cash flow that the uncertainty had caused.

 
Read what others are saying

    Most Read: Business

    DJIA
    0.15%
    NASDAQ
    0.36%
     Last Update: : AM 12/21/2014(NASDAQ&DJIA) |

    World Markets from      

     

    Other Market Data from      

     

    Key Rates from