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Why Medicare is expensive, in one chart

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We’re another day closer to the end of the year, but not much closer to agreement on a payroll tax bill. And that means, for health policy world, no agreement on a “doc-fix” to avert a 27.4 percent cut to Medicare doctors’ reimbursements.

A new article in New England Journal of Medicine probes how we got to this situation in the first place: Why are Medicare costs growing faster than Congress predicted they would back in the late 1990s? What created the gap between how much we budget for Medicare and how much we spend on the program?

It mostly comes down to a handful of medical specialities that have grown much faster than expected. Some parts of the Medicare system have actually grown slower than expected. All of them, however, would face a double-digit cut in reimbursements if Congress doesn’t appropriate any additional money to the Medicare program.

Harvard health policy researchers Ali Alhassani, Amitabh Chandra and Michael Chernew draw up the above chart to explore how much various medical specialities either overshot or came in under Medicare spending targets. Radiation oncology, for example, overshot what we expected it to cost by just about 300 percent. General surgery, however, has actually cost much lower than expected while opthalmology is just about on target.

There’s a hole between how much we budget for Medicare and how much it costs, because way more medical specialities are to the right of the dotted line here than to the left.

This graph also speaks to the doc-fix as a relatively inelegant policy solution: If Congress passes a pay-patch, all doctors see their salaries remain steady. If they don’t, all face a 27.4 percent reduction in reimbursement, regardless of whether their costs have actually outpaced the Medicare budget. “Across-the-board cuts in fees are too blunt an instrument to restrain the growth of spending on physician services,” the Harvard researchers argue. In other words, it’s hard to push general surgeons to keep costs down — as this chart shows they have — if, at the end of the day, their only reward will be a double-digit pay cut along with everyone else.

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