Obama’s new fiscal cliff offer would repeal the ‘doc-fix’

December 18, 2012

In the White House's latest "fiscal cliff" offer to House Speaker John Boehner, President Obama proposed a permanent repeal of Medicare's sustainable growth rate alongside $400 billion health care savings, according to a source familiar with the talks.

A permanent fix would come with a $245 billion price tag and it's still unclear how - or if - Congress would pay for a policy meant to stabilize doctor salaries. 

For doctor groups, repealing the sustainable growth rate is something of a holy grail: This is the formula that determines how much Medicare providers get paid, by tethering their salaries to overall growth in the economy. This formula has, for a decade now, always fallen short of keeping doctor salaries stable. This year, if we stuck to what the sustainable growth rate says doctors should be paid, physicians would end up taking a 26.5 percent pay cut. 

That has meant that, year after year, Congress has had to pass a "doc-fix:" A short term funding patch to make up the difference between what the formula says doctors should get paid, and what it would take to keep their salaries stable. It's become somewhat of a  tradition, where Congress scrapes together small cuts from other programs to pay for the fix.

It's hard to find anyone in Washington who likes the doc-fix: Not Republicans, not Democrats and especially not health care economists (Brandeis University's Stuart Altman once told me he'd never "felt so vindictive about a piece of legislation in my life.”)

While there's near universal vitriol for the doc-fix, a permanent solution has proved elusive due to its price tag. Shoring up doctors' payments for the next decade would cost $245 billion, according to Congressional Budget Office projections. Finding the money to stabilize payments for the next year comes with a smaller, $25 billion price tag.

The American Medical Association pushed for a permanent doc-fix during the health reform debate, but failed to land in the final legislation. 

If the White House does indeed succeed in eliminating the sustainable growth rate, it would presumably need to find $244 billion to pay for the provision. It would also need to settle on a new formula to calculate what Medicare ought to pay doctors for each surgery they perform and medication they prescribe.

MedPac, a non-partisan body that advises Congress on Medicare policy, has its own preferred option. It has recommended that if Congress repeals the sustainable growth rate, it should continue to hold primary care doctor payments steady. At the same time, specialty doctors would see a haircut in their services for three years, and then see their rates freeze as well. 

"While there would be decreases in payment rates for most services, projected growth in the volume of services—due to increases in both beneficiary enrollment in Medicare and per beneficiary service use—would lead to continued annual increases in total Medicare expenditures for fee-schedule services," MedPac analysts wrote in a 2011 letter to Congress. 

This option, unsurprisingly, is not popular with the specialty doctors, who wouldn't be thrilled about taking a pay cut. That means that doctor lobbies don't think they're out of the woods quite yet, if fixing the doc-fix could end up meaning a significant salary cut. 

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Brad Plumer · December 18, 2012