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FAQ: The 'Doc Fix' Dilemma

Among the issues on Congress’ must-do list is the “doc fix” – finding billions of dollars needed to avert drastic rate cuts for physicians who treat Medicare’s 48 million beneficiaries.

For doctors, the nail-biter has become a familiar but frustrating rite. Lawmakers invariably defer the cuts prescribed by a 1997 reimbursement formula, which everyone agrees is broken beyond repair. But the deferrals are temporary, and the doc fix has become increasingly difficult to push through a divided and deficit-wary Congress. In 2010, Congress delayed scheduled cuts five times, with the longest patch lasting one year.

The script is no different this year. A temporary, two-month extension Congress approved late last year expires Feb. 29. While Democratic and Republican leaders say they do not want Medicare physicians’ payments to be cut, they disagree over how to offset the costs of a fix. But there is little doubt that some agreement will be reached.

Here are some answers to frequently asked questions about the doc fix.

Q: How did this become an issue?

Today’s problem is a result of yesterday’s budget panacea – a 1997 deficit reduction law that called for setting Medicare physician payment rates through a formula based on economic growth. For the first few years, Medicare expenditures did not exceed the target and doctors received modest pay increases. But in 2002, doctors reacted with fury when they came in for a 4.8 percent pay cut. Every year since, Congress has staved off the scheduled cuts. But each deferral just increased the size – and price tag – of the fix needed the next time.

The formula also reinforces what many experts say are some of the worst aspects of the current fee-for-service system – rewarding doctors for providing more tests, more procedures and more visits, rather than for better, more effective care. In an Oct. 14 letter to lawmakers, the Medicare Payment Advisory Commission (MedPAC), which advises lawmakers on Medicare payments, called the formula “fundamentally flawed” and said it “has failed to restrain volume growth and, in fact, may have exacerbated it.”

Q. Why don’t lawmakers simply eliminate the formula?

Money is the biggest problem. It would cost about $300 billion to stop the doc fix cuts over the next decade and Congress can’t agree on where to find that kind of cash. Some lawmakers, including House Minority Leader Nancy Pelosi, D-Calif., and Sen. Jon Kyl of Arizona, the Senate Republican whip, have proposed using money saved from winding down the wars in Iraq and Afghanistan to finance a permanent fix. While the idea has found favor among Democrats, many Republicans oppose it.

For physicians, the prospect of facing big payment cuts is a source of mounting frustration. Some say the uncertainty led them to quit the program, while others are threatening to do so. Still, defections have not been significant to date, according to MedPAC. Physician groups continue to lobby Congress to enact a permanent payment fix.

Q: What do experts recommend?

In October, MedPAC recommended eliminating the formula without increasing the deficit by cutting fees for specialists and imposing a 10-year freeze on rates for primary care physicians. That proposal was strongly opposed by health industry groups, as well as the American Medical Association (AMA).
The AMA has recommended a five-year transition fee scale that allows time to test new payment approaches, including several being tested as part of the 2010 health care law.

Several other options have been offered to fix the reimbursement scheme, including proposals by Rep. Allyson Schwartz, D-Pa., and the White House, but none has generated strong bipartisan interest.

Q: What happens next?

The current two-month doc fix, included in a bill the House passed in December to extend the payroll tax break, expires Feb. 29. House and Senate conferees are scheduled to begin negotiations Jan. 24 over how to resolve differences between the parties on the length of a doc fix and how to finance it.

The Republican-led House passed a complex tax bill Dec. 13 that would extend doctors’ payments for two years at a cost of $38 billion. Senate Democrats have objected to several provisions in the bill, including cutting programs established by the 2010 health law and reducing Medicare and Medicaid payments to hospitals. Democrats also object to language in the House measure that would require higher-income Medicare beneficiaries to pay more for their coverage.

— Compiled by Mary Agnes Carey, Carol Eisenberg and Lexie Verdon


This article was reprinted from kaiserhealthnews.org with permission from the Henry J. Kaiser Family Foundation. Kaiser Health News, an editorially independent news service, is a program of the Kaiser Family Foundation, a nonpartisan health care policy research organization unaffiliated with Kaiser Permanente.

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