President Reagan's Cabinet Council on Domestic Policy has recommended that the administration abandon the idea of immediate radical changes in the way Medicare pays doctors. Instead, sources said yesterday, the council recommended that Medicare continue -- at least temporarily -- to pay doctors whatever they customarily charge, within certain limits.
Critics have charged that the current system provides no restraints on rising doctors' fees. But sources said the council's recommendation does not mean the government intends to maintain the status quo in the Medicare system, the federal health care program for the aged and disabled.
Rather, several sources said, the decision was intended to pave the way for Medicare eventually to adopt a so-called "capitation" system as a way of holding down doctors' fees.
Under a capitation scheme, the government would make a single fixed annual payment, say to an insurance company, to cover all the doctor services provided to a Medicare patient, both in and out of hospital.
No matter how many doctor services the patient required, the annual payment would be the same. This proposal, favored by Health and Human Services Secretary Margaret M. Heckler, is based on the model of health maintenance organizations (HMOs), in which a person makes one payment to the HMO for the year -- say $1,000 or $2,000 -- to cover all or most of the services he needs.
One health industry source said it was expected that HHS would launch several demonstration projects soon to test the capitation idea.
The current system for paying doctors was adopted from private medical practice when Medicare was set up 20 years ago. Each doctor could charge whatever he wished for each visit or operation. If the fee didn't exceed certain limits, Medicare simply reimbursed him.
The system has been criticized in recent years for encouraging doctors to raise their prices and order unnecessary visits, tests and services. From 1978 to 1984, Medicare payments to doctors rose at an annual rate of 19.6 percent, and are approaching $20 billion a year.
There has, however, been a temporary freeze over the past year on increases in the Medicare payment rates to doctors.
Heckler, in presenting the council with various options for controlling Medicare fees once the freeze lapses, argued that the capitation concept has long been the Reagan administration's favored strategy for controlling doctor costs.
A memorandum distributed at the Wednesday meeting said, "Capitation means paying a fixed amount for a given benefit package on an annual basis for each beneficiary. Experience with HMOs, which are based on capitation, has shown that such a payment mechanism leads to quality care at lower cost."
The theory is that if every Medicare patient is given the option of joining such a plan, doctors' groups, HMOs and insurance and medical groups would compete to offer the best plans at the lowest costs, holding prices down while providing the required package of services.
Heckler argued that if any other plan for controlling Medicare doctor costs were put into effect now, it would simply clog the system and make it much more difficult to install a capitation scheme later on. Therefore, she said, it would be best to simply leave the old system in effect for now with relatively minor changes and move ahead at full speed on developing a good capitation scheme.
The council's recommendation now go to Reagan for approval.
In retaining the current fee-for-service system, the council rejected two other options.
One would have created a nationwide system for doctor payments under Medicare, so that doctors across the country would receive basically the same fee for performing the same service. At present, a doctor normally receives his "customary" charge from Medicare, which means that two doctors in the same building could receive different fees for performing the same service. There are also very wide regional variations.
The second option would have set a fixed fee to cover all of the doctor fees of a hospitalized Medicare patient, depending on the severity of his illness. The fee would not change, regardless of how many days the patient was in the hospital or how many services he needed.