A Shell Game for Disguising Health Reform Costs

Saturday, October 10, 2009

THE SENATE Finance Committee's health-reform bill is fully paid for, according to the Congressional Budget Office; in fact, the CBO says, it would save $81 billion in the first 10 years. The House version of health reform, by contrast, would add $239 billion to the deficit over that period. So the Senate bill is more fiscally responsible, right? Not exactly.

The cost difference stems from the fact that the House measure is honest enough to include the full 10-year cost of the so-called "doc fix" -- $245 billion to reverse scheduled cuts in Medicare payments to physicians -- although not fiscally responsible enough to pay for it. The Senate just patches the problem for one year and pretends that doctors take a 25 percent cut in reimbursements the following year and then stay at that low level forever. No one believes that will happen, so the money is going to have to be scrounged up later or else add more to the deficit. At least the House makes that unpleasant fact clear, rather than sweeping it under the rug.

The trajectory of the debate over the physician payments is instructive -- and depressing. The problem stems from an earlier congressional attempt to clamp down on health-care costs. In 1997, to get Medicare reimbursement rates to physicians under control, Congress set out a formula for calculating yearly changes. It was called, ironically enough, the Sustainable Growth Rate (SGR). That worked fine for a few years, while payments were rising. But when the formula dictated lower reimbursement rates, doctors balked -- and Congress responded. Every year from 2004 through 2009, Congress took action to spare doctors from the effect of the planned cuts.

In fact, there is widespread agreement that the original spending formula turned out to be unreasonable. Congress wasn't wrong to override it. What is wrong is to pretend the cost doesn't exist -- and to overhaul the health-care system without dealing with this quarter-trillion-dollar expense.

Granted, this is not a problem that the Obama administration created. The administration claims credit for honesty in budgeting because it included the cost of the fix in its projections. But it then gives itself an easy out -- declaring that this cost should not be subject to pay-as-you go budgeting rules that would require that the fix not add to the deficit. The House has agreed, decreeing that the SGR fix should be exempted from pay-as-you-go.

The administration also reduced the apparent "cost" of the fix by redefining the services covered by the SGR formula. Originally, physician-administered drugs such as those used in chemotherapy were included in the overall calculation of reimbursement amounts. Now, under a rule proposed in July, the cost of those drugs -- about $80 billion over 10 years -- will be moved into a different basket of spending not covered by the SGR limits, allowing more money to be used to pay doctors for other services.

Except, of course, the cost to federal taxpayers remains -- no matter how much budgetary smoke and mirrors are used to make it seem to disappear, or to postpone the check-writing.

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